Hangzhou is one of the premier places to eat in China, and its food consists more of pork and seafood rather than the beef and lamb of the north and west. If you do not like Hangzhou food, you can find plenty of Sichuan, Shaanxi, and Xinjiang restaurants throughout the city. Typical Hangzhou specialties include dongpo rou, an extremely fatty chunk of pork in a syrupy sauce, and cuyu, which is fish with a vinegar sauce.
BudgetFor budget restaurants, even near the lake, just head into an alley and get some food from a small restaurant or street-side stand. You should judge for yourself how sanitary the food is, but Hangzhou is generally fairly civilized in this respect relative to other Chinese cities. These restaurants are all quite similar.
Mid-rangeHangzhou has many KFCs, several McDonalds, and an increasing number of Pizza Huts throughout town, especially near the lake. If you like Pizza Hut style pizza, but don't want to pay Pizza Hut prices, there's a much cheaper Pizza Hut 'clone' on You Dian Road, corner of Hubin Road, right near the lake.
Other restaurants that are good and aren't as tourist-trappy can as Lou Wai Lou are located near the West Lake, usually to the East past Hubin Road in the Yan'an Road area.
For Xinjiang, try Jade Dragon Xinjiang Special Restaurant (龙翠阁新疆特色餐厅) inside the Handnice Hotel (Originally of Tiandu Hotel on Zhongshan Bei Road) at the east side of Hangzhou Yellow Dragon Sports Stadium. Some say the Xinjiang restaurant on the 5th floor of Sanrui Tower (三瑞大厦) on Qingchun Road is better and more authentic, and on the east side of town, Xinjiang Pamir Muslim Restaurant (新疆帕米尔餐厅) has many Xinjiang people dining there.
Chuan Wei Guan. For Hot Pot, this city-wide chain (5 restaurants throughout town) is best, and this hotpot place also has several good Sichuan dishes.
Grandma's Kitchen (外婆家) has at least 5 locations in Hangzhou, including one on Yugu Road near the soccer stadium and Zhejiang University. It has efficient service, a comprehensive picture menu, and is popular among just about everyone. However, not all locations offer the same selection or the same prices. One of the best is on Ma Cheng Road, between Tian Mu Shan and Wen San Roads, near to the Boku bookstore. It's usually busy, so come early for lunch if you don't want to queue.Zhang Sheng Ji (张生记), 33 East Qingchun Road. Out of the way but is also huge and now has branches all over China.
LuxuryLou Wai Lou (楼外楼), right on the lake on an island off Beishan Road. The most famous restaurant in Hangzhou. Lou Wai Lou also has a second establishment called "Shan Wai Shan" right on the Botanical Gardens.Oriental Favorites Restaurant, Beishan Road (just past the Broken Bridge). A good replacement for Lou Wai Lou and has an equally good view with slightly cheaper prices (but it's still expensive).Hubin 28, Hyatt Hotel, 28 Hubin Road. One of the top Chinese restaurants in Hangzhou. Hubin 28 serves good food from all over China in a restaurant designed with a mixture of modern fittings and traditional furniture. It has received good reviews in many foodie magazines in Hong Kong. Dinner will cost more than RMB200 per person.