I actually just back from vacation in London and I had a great experience staying in a room in shared flat through AirBnB. It was extremely cheap in a great location (right off Brick Lane). The roommates were nice and the only complaint was that when they set-up the market for Sunday they started at 4am- ouch.

For different options, you should refer to an article on EasyExpat: Hotel Alternatives. There are a lot of great options out there that allow you to protect yourself financially and save money.

I really liked staying on Brick Lane which has tons of Indian food and is kinda a young, student area. There is a lot of drinking/partying though so if that is not your scene it might not be for you. Make sure to check out the EasyExpat guide to London. You can now download the whole guide as a pdf for free!

Enjoy your trip!