There's a tradeoff there. I can tell you from my own experiences that you definitely can get a better feel for the school and what the people are like, and how they live, if you stay with a student. That said, the one time I stayed with a student, there was a party going on all night outside his apartment and I got somewhere between 2-3 hours of sleep. There's no telling if or how that affected my interview day.
I would say earlier in the week, say Monday through Thursday interview days, you shouldn't have much of a problem staying with the student. Things should be pretty quiet. Friday or Saturday interview, though, you'll definitely want to make sure the student lives in a peaceful part of town.
Me, personally, as a reapplicant, I don't really care any more which school I get into, I just want to get into any school, and I figure I maximize my chances of doing so if I'm well-rested for the interview day. So, hotels for me. And if I should actually have a choice between schools, I'm sure I'll be able to get in touch with some students there, and find out what I need to know.