Zermatt Hotel

If you are not going there to ski, there isn't a lot more to do though there shops, music, and a couple of museums and a couple of amusement parks. They do have plenty of ski schools with equipment for rent so if you wanted to give it a go, it's possible. This is not a cheap or reasonable area (none of Switzerland really is) but for about $30 your highest price listed, you can stay at the Belle Vista Hotel bellevista-zermatt.ch which is a very nice place with good food and nice people.

Three days gives you a better chance to see the Matterhorn.

We stayed at the Hotel Primavera with an excellent balcony with a Matterhorn view! And a great breakfast. http://www.hotel-primavera.ch/index_e.html

You can ride a gondola to Paradise or a train to Gornergrat
http://www.gornergratbahn.ch/en/Pages/default.aspx

September is summer ski season but totally optional :-)
http://www.matterhornparadise.ch/en/summer/summer-skiing

I just booked Haus Sonndeim for four nights <€400, also in September. Planning to hike and it seems there is plenty of that. Rick's book on Switzerland covers the hiking pretty well, but the TI should have more ideas.

September is still hiking season, not ski season. So you will have plenty to do,,riding the lifts and going for walks. Be sure and take the train to the Gornergrat for great views of the glacier world below. And the Matterhorn if it is out.

Thanks for the reply Sasha....any ideas of location for hotel or name of a decent hotel in the $150/night range?

Also:
Do you think this itinerary is too crazy?

Sunday September 20 in Varenna
Monday - travel Varenna - Pontresina
Tuesday - travel Pontresina-Zermatt
Wednesday - Zermatt
Thursday - travel Zermatt - Milan
We are not sure if we will use regional trains or Bernina Express/Glazier Express. But hear the rides on either are spectacular.
Looking forward to responses!
Thanks,

As a general rule, during the hiking season in the Alps, plan a minimum of three nights in any one location. That gives you two full days, which you need to hedge your bets against losing a day to bad weather. Particularly Zermatt, which takes quite a bit of time to reach.

Probably not in the price range you quoted, but I had a fantastic stay at Grand Hotel Zermatterhof.

I've trekked all over the Alps, and the hiking above Zermatt is the most stunning I have found anywhere.

Try the Hotel Ambiance. The last hotel in Zermatt still managed on site by the owners. Good Matterhorn views with the right room and great food.