I'd stay in Jersey City NJ, and take the PATH. Prices are (depending on season) anywhere from 30-60% cheaper than Manhattan (i.e. $250 vs. $500).
The Hyatt in Jersey City is nice, and right next to the PATH station. Nice beds, rooms are nice, too (and you might be able to get a decent view). The restaurant is beautifully located, overlooking the Hudson river towards the Statue of Liberty, but is quite expensive ($30 for breakfast buffet).
The Courtyard is also close to a path station, but you'd have to transfer, IIRC, to get to New York It's cheaper than the Hyatt, continental breakfast might be included, esp. if you have AAA.
The PATH will take you up to 33rd, which is about 8-10 blocks from times square; it's an easy hoof, even in dress shoes. Of course, cabs are always an option.
Feel free to email if you have further questions.
Bradley