We stayed at the Red Inn Heritage Guest House twice while in Penang. We did stay somewhere else in Georgetown briefly but the less said about that place the better. The Red Inn was a much MUCH better place to stay.
It looks like the Red Inn has only recently been renovated as of November 2011. Improvements were actually still being made in some parts of the building during our stay (during reasonable hours and by a very considerate guy).
The rooms range from those with their own shower and toilet to those with a shower but no toilet to dorms. The shared bathrooms were pretty amazing. Its really uncommon for the shared bathrooms to be so well looked after. Lots of guesthouses lavish attention on the lobby and other common areas but neglect the showers and the toilets.
There are two common areas. One is partially under cover, the other is indoors. Having a range of tables and couches to work on was really nice for us.
Location wise, its also pretty great. Its within the historic center of Georgetown. Little India is a few blocks away. Jalan Penang is a few blocks in the other direction for when you want to do some shopping or go out for a drink. Its also about 15 minutes walk from the Komtar giant maze of shopping. There's absolutely everything there but don't be in a hurry. It took us two hours of wandering through an interconnected series of shopping centers to find the Carrefour (a big supermarket).
We'd definitely stay at the Red Inn Heritage Guesthouse again. The staff were friendly, its clean, the breakfast is varied and its a great jumping off point for exploring the city. Our only complaint was about night time noise in one of the rooms we stayed in. One room we stayed in was right at the back and was really quiet day and night. The other one though was on the main corridor that runs the length of the place. People running back and forth with their wheeled suitcases click clacking over the tiles occasionally banging into the walls while shouting at their friends at the opposite end of the building late at night should really know better. Maybe some sort of sound proofing may be in order. Or carpet. Or more considerate guests.
Anyhow, we'd definitely stay there again. We would however probably try and snag ones of the rooms towards the back of the place just to minimize the amount of late night traffic past our door.