My blogs on South America will give you some good tips on what you would like yourself. As regards hostels. A certain site with the name hostel and world at the end will never lead you astray. Only thing is they get 10% of the booking. I would advise booking one night through them if you feel you need to and then when you arrive book the rest of your stay with the hostel. At least the hostel gets all the money then.
I would advise crossing from Santiago into Argentina as its better value for money and well, just better (in my opinion) You can then cross back into San Pedro de Atacama to to the Salt flats tour in Boliva from Chile. My information will probably all be irrelevant anyway, as you will meet so many on the road with tips for the next town you wont know which ones to use.
Rio - Mango Tree (our first and still one of our favourites)
Argentina
Buenos Aires - Hostel Suites Oblescio (think we picked up the dreaded bed bugs in this one!) Not a bad hostel but not great for meeting people.
Ushuaia - La Posta, Excellent place to meet people and brilliant facilities.
El Calafate - I Keu Ken - Stay Here!
El Chalten - Rancho Grande - Big boring hostel
El Bolson - El Pluebito - Stay Here!!!
Bariloche - Pudu - Stay Here!!!
Mendoza - Chimbas - Nice hostel
Bolivia
La Paz - Loki - What can I say! If you like putting white substances up your nose La Paz is your best place. Its not my cup of tea but you can be gaurenteed most people will be wearing the ear off you. Everyone was buzzing and wanting to talk. Nobody wanted to listen though.
Peru
Puno - Bothy - Best of an average bunch. Very helpful staff and nothing bad to say about it!
Arequipa - Bothy - It was ok and near all the action. Lots of other hostels on the same street if you didnt like it.
Huacchina - Cant remember the name but it is the main one. Huacchina is small, I mean very small. The hostel was full of sun worshipers if your into that.
Cusco - Resbolosa - Cheap and cheerful. A close walk to everything but one difficult walk back up hill to get there but only because of the altitude.
Chile
Santiago - La Casa Rojas - Good hostel and good starting point
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