My husband and I were in Lexington in April 2007 for his college reunion. I would highly recommend hat you make a side trip to Mrs Rowe's in Staunton (about 45 minutes north of Lexington). I know that many people consider it touristy, and say that it has gone downhill since Mrs Rowe died, but for my money, nothing beats breakfast there. The grits and the biscuits are to die for.
In Lexington there are a few decent choices:
The Bistro on Main St. (Lunch and Dinner) Very nice atmosphere and food
The Southern Inn on Main St. A Lexington Classic
Christopher's SteakHouse East Washington. Very nice atmosphere and good food
The Sheridan Livery on Main St. Good food and Lodging too
La Patisserie on Main St New and busy
Sweet Treats Bakery W. Washington - great Breakfast and Lunch
Blue Sky Bakery W. Nelson - Good lunch sandwiches and backed goods
Frank's Pizza - Another Lexington landmark
I haven't been to Lexington in a couple of years so I can't say what's happening on the restaurant scene but I can tell you that you'll be hard pressed to find better chocolate than you'll find at Cocoa Mill on West Nelson. Tell Laura Dave and Mary sent you and I guarantee you a squeal you won't forget.
I haven't been to any of these places in about 8 years (during my pre-chowhounding days) and when I lived there I didn't eat out all that often, but the Sheridan Livery Inn (also a small hotel) and Southern Inn (not a hotel) were good bets - both right on Main St. Also, the Natural Bridge Hotel is about 15 minutes away and there is a very nice restaurant inside the hotel.
Most of the larger hotels in Lexington are Days Inn, Best Western types.
since you weighed in fr/ 8 years ago I will weigh in fr/ 5 years ago. I had one of the most delightful duck breasts I have ever had at a little place (& Southern Inn sounds familiar) that looked to be a converted pharmacy. It was right on the main drag. We had several meals at places in d/t Lex and never had a "bad" meal.
Fuss fell in love w/ a little hole in the wall beer type bar that had decent burgers & bar type food. Unfortunately every thing was so long ago I can not remember the names.
We stayed at a B&B just o/s of the main part of d/t Lewellyn Lodge (or some thing like that). Nice enough but we kind of missed things by not being in the middle of town but close enough to walk to every thing.
I hope that helps. I thoroughly enjoyed Lexington and would return in a heart beat.