We are going to be in La in July and were planning on driving up the coast to San Fransisco. Does anyone know a nice somewhat reasonable hotel to stay at around Carmel or should we just go straight to Napa Valley?

Go to www.carmelcalifornia.org and click on "visitors." This will give you an overview. If you stay in the heart of town, you can walk to the restaurants, shops, galleries, beach. Carmel is quaint, charming, upscale, and lovely. Well worth a couple days.
Carmel has many B&Bs as well as hotels. A very nice one is Vagabonds House. www.vagabondshouseinn.com

deeblaw, the Best Western Carmel Bayview Inn is really nice, especially for the price. I was there only one night but the place was so pretty and cozy, I really hated to leave. A lot of the King rooms have a fireplace for only $10 more; be sure to get one! We paid about $120 night; the good/typical continental bkfst. was in such a cute little room. Enjoy your drive up the Coast ... it is stunning.

ITA with the BW Bayview. Also, check the BW Carmel townhouse. And the following where we stayed for my daughter's wedding weekend in 2005: http://www.carmelgardencourtinn.com/

Another tip is to stay a Sunday - Thursday night in Carmel. July weekends will be very pricey, and the more reasonable places may be booked already.

Two independents in downtown Carmel are pleasant and affordable. The Village Inn and the Dolphin. Both older places, but lots of character and walking distance to the beach and around town.