What is the nicest, (plush beds,upscale) place to stay in Sanibel?

There aren't really any "upscale hotels" on Sanibel. It's not that kind of place. Go to Tipadvisor and do a search on hotels for Sanibel. The highest tank hotel is West Wind Inn - NOT an upscale place (but pretty nice). That should give you an idea of what is available. There are a couple of nice, smallish inns. Otherwise, I'd suggest that you rent a nice condo.

Try checking Song of the Sea. It might have what you want. Years ago it was a bit informal but I have heard there has been a change & it is much more "posh". Sanibel is more known for its casual, relaxed charm.

Silkie--when you look at Sanibel you also have to look at Captiva--however you have not mentioned when you are visiting, but South Seas is a wonderful resort, on Captiva, but not sure where they are in regard to hurricane repair. So depending on when you are planning on visiting will determine if you should stay there

Sundial resort on Sanibel is as "upscale" as you get on the island,
South Sea in Captiva (if open)with a number of good restaurants near by (Mucky Duck, Bubble Room).

You might look into the Sanibel Harbour Resort. It is just at the bridge in Ft. Myers, right before you cross over onto Sanibel Island. I have stayed there twice and it is a beautiful place. They have a website:
http://www.sanibel-resort.com/index2.asp

Like MarciaK said, Sanibel Harbour Resort and Spa is probably what you're looking for. But as she said, it is on the bay right before the bridge to Sanibel, so it's not directly on the island. You would have to drive to the beach or take their complimentary shuttle.

The resort, itself, is quite nice with a couple of large pools, beautiful grounds, nice spa, tennis courts, etc.

South Seas resort is not open on Captiva and will not be open until December at the very earliest. It suffered severe damage from hurricane charlie. I posted a report this morning. It should be easy to find.

Sundial is probably the most complete resort on Sanibel but I do not consider it luxurious in any way. It is reopening July 15 instead of May 1st as planned. It had quite a bit of water damage from the hurricane. The good thing is that much of the resort has been redecorated. I haven't seen what the renovations look like.

The Sanibel Harbor resort also refurbished and reopened in March I think. I have seen the lobby and it looks much better. It is not a beach resort in anyway however. They do have a nice spa though.

LMF

I think you'll have to look for a condo. They come in different price ranges, and there are some very upscale and expensive ones available.
There is no substitute to get the real feeling of Sanibel (or Captiva) than staying ON the island. In my view that eliminates Sanibel Harbour Resort.

I was just wondering what happened to Casa Ybel. We had a beautiful time there several summers ago in June.