I'll be there January 4-8.
I'm considering Hostal Veronica Centro which looks to be about 10 minutes walk from the Cathedral on one side, and also considering Hotel Granada Centro and Hotel Posada del Toro, which are on the other side (with Hotel Posada del Toro very close). But I'm not sure if I should be trying for closeness to the cathedral, or the Alhambra, or where. I will definitely be wanting to go out at night for music and flamenco and whatever other cultural pursuits I can find.

Flip that three sided coin - but the Centro is clearly a longer walk from more central. There is little by the Alhambra for your criteria and a hike again.

Stay nearer the Cathedral. There is good public transport from the very centre to the Alhambra.

You will miss the Reconquest Festival in Granada, which takes place January 2, but Three Kings Day, Dia de los Reyes, is the 5th. This is a big day in Granada, with the celebration and procession of the Three Kings; Balthasar, Caspar and Melchior. Epiphany, the end of the Christmas holiday season, is on the 6th.

I would make lunch and/or dinner reservations as soon as possible, as restaurants will be packed on the 5th and 6th.

Stay near the Cathedral. The shuttle stop to the Alhambra is not far away. All the restaurants and bars are around the center of Granada plus public transportation. I just came back from Granada and you'll be spending more time at sites etc... in the center during your four days. I don't know where the hotels that you mentioned are but if they are only a 10 minute walk to the Cathedral, you'll be fine.

Another vote for staying near the Cathedral. Enjoy!

I decided to stay at Hotel Sacromonte, and I made a non-refundable booking through their website, so I am committed. The rate is 30 Euros/night, and it seems like a central, decent 3* hotel.

The area isn't bad and you're only a short walk to Restaurant Oliver. Try to make it over to Tendido 1, at Calle Dr. Oloriz, 25, for tapas and a gin tonic (http://tendido1.com).

Don't forget Puerto Del Carmen in the Plaza del Carmen (www.puertadelcarmenrestaurante.com).

Very good location. Two mins. from where we stayed (Hotel Párraga Siete).