Zermatt is the place to be if you prefer a car free town, and if you value shopping, a wide choice of restaurants, and lots of transportation services into the mountains. It's a lively, touristy, pretty town.
If you prefer smaller villages, then look into hotels in Täsch, Randa and St. Niklaus. Grächen is a very good option as well, but it's up on a plateau so you need to take extra traveling time into account if you want to explore the whole valley. Täsch and Randa are close to Zermatt and therefore they're a good alternative if Zermatt does not fit your budget.