By far the best hostel in Melbourne is Habitat HQ, with their uniqe approach to Hostelling these guys have won more awards than you can shake a stick at.
Due to its helpful staff and high quality standards, they are regularly voted as one of the best hostels in Australia. This really is one of the cleanest and most helpful hostels we've ever stayed in.
With a great location in St Kilda, just a few minutes on the tram to the city centre, look no further for your hostel when heading to Melbourne. But be warned, book ahead as this hostels reputation preceeds it, and it does get booked up in peak times and you don't want to miss out.