Merced 88 was a great hostel. Excellent service from staff, place was clean with great showers. Has large wooden lockers in rooms that you provide your own lock for (I'd imagine you have some on your luggage. Plenty of space in dorm rooms.
Conveniently located near a subway station so you can catch the Metro to the hostel from the airport (well you take the public bus to the nearest metro station first, but a lot cheaper than catching a taxi). Basic free buffet breakfast included (no bacon, sausages or things like that) but you get two boiled eggs, bread, cereal, juice, fruit. Next to a park with the best of the fountains/sculptures of Santiago out front. Not far from a large supermarket (go left out front door, stay on Merced, walk for about 6 or 7 minutes). Across the park and the Terminator 2 drain river thing behind, about a ten minute walk from the hostel is the Funicular which takes you up the mountain to the cable cars and religious character statues.