My wife and I will visit Budapest for 5 days in September 2006 and will be staying at the Marriott hotel.. We will sincerely appreciate suggestions for good restaurants.
We enjoyed Fatâl Restaurant in the city centre. It should be close to your hotel. ("Fatâl" is apparently Hungarian for "wooden plate," on which the dishes are served.) We were last there in 2000. It's crowded and somewhat touristy, but the food is great and the prices very reasonable. When we were there, they basically had two seatings, and bookings were essential (your hotel can do this for you). It's located on a small side alley off the main shopping street. There's a sign on the alley entrance pointing to the restaurant, but it's definitely a case of "blink and you miss it." As mentioned in the reviews, the portions are huge, so order accordingly.
Also try to get to the food market at the end of the main pedestrian shopping street. Well worth a visit, even if you're not grocery shopping!