Only there for 3 days, would you stay in Venice or elsewhere adjacent? Will you spend a lot of money going back and forth on transportation, and does that offset any savings staying outside of Venice?

If you want the "real" experience then you need to stay on the Lagoon. You have two other sensible choices, the coast of the sea or Mestre. Of these two the cheapest is Mestre and we are only talking say Euro 2 (I think) to get by bus or train into the town from Mestre, while hotel rooms are much cheaper

So if I was really without funds I'd stay in Mestre, if I could afford say a B&B in Venice proper I'd stump up, after all how long do you stay in a hotel room apart from when you are asleep.

Definitely stay in Venice; you'll miss so much if you have to go back and forth to another location. Venice is magical early in the morning and late in the evening. There are hotels in all price ranges in Venice. If you post your budget maybe someone can recommend a place.

700.00 for 3 nights, many hotels sold out. I'll go with Venice, any B&b's you can suggest.

We've stayed 3 times at the Locanda Orselolo. The owners are warm and welcoming. Breakfasts are absolutely delicious. I know it's pricey but well worth it. They're within walking distance to St. Mark's square. If you take the private
water taxi from the airport, the Locanda has it's own entrance.

http://www.locandaorseolo.com/rooms.htm

I agree..stay in Venice. Check out vrbo.com or homeaway.com. You can find some reasonable apartment rentals...1 or more bedrooms. It is the best way to see the area.. Forget hotels as they are usually overpriced and tiny. We rented one around the corner from the water but had a terrific view. You hit the farmers market for snack stuff and head for the coffee shops. Food is kind of expensive on the main tourist streets but in Venice you will likely get lost, which means you will stumble upon plenty of non touristy restaurants.