Santee Alley is not worth it, but the fabric and notions in the fashion district is definitely worth it. The Michael Levine store is a favorite, but you can see a list of all the stores here:link
Apart from the fabric district, there isn't much of interest downtown.* I don't know the hotel you're talking about, but the reviews I'm seeing on google would make me look somewhere else. Personally, I would stay in Santa Monica somewhere. I don't know the subway, but the Big Blue Bus in Santa Monica is the easiest bus system in the city, and there are more nice places to eat and have fun in Santa Monica than there are downtown (in my opinion). And yes, that's where the beach is!
So anyway, if you do go to the West side, I like: F & S Fabric on Pico (home and apparel fabric), Stampin from the Heart on Washington Pl (stamps and papercraft), El Cholo on Wilshire (great Mexican place), and The Little Door on 3rd (classy romantic restaurant) or Riva on Wilshire (another nice restaurant).
It isn't easy to get to all these places without a car, though -- sadly, LA is a car city -- and I do recommend renting something if you can. If you attempt the bus system, use metro.net -- the trick is to extend your search criteria so that you are willing to walk up to 1 mile, in the advanced search options. This way it will be smarter about reducing the amount of connections needed to get from A to B. And be careful about time -- many bus lines stop running ridiculously early.
*edit: I don't mean to pick on downtown, it's just not as tourist-friendly as some other places.