We don't have any boutique hotels here in central Lagos yet.
The Villa Galé Lagos which is being built just down the road from me opens on April 25th, 2009.
See: http://www.vilagale.pt/pages/hoteis/?hotel=21
This group's hotels are usually very well appointed.
However, it is about 1500m from town.
Vivenda Miranda is also very nice and has great sea views.
http://www.vivendamiranda.com/
Again it a a way from town but the restaurants at Porto do Mós are in easy walking distance.
Within the city walls you could have a look at Casa da Moura and within easy walking distance of town.
http://www.casadamoura.com/_en/index.htm
