You'll get better hotel deals staying in Palm Springs/Palm Desert/Desert Hot Springs/Cathedral City than in Indio. It means a little bit longer drive in the morning to get to the festival (20-30 minutes), but it can be a big $ saver.
Hotels we've stayed at:
Motel 6: We stayed at the one in Palm Springs on E. Palm Canyon Drive (that's opposed to the one on S. Palm Canyon Drive. They're practically within walking distance of each other). It functioned perfectly well as a room with 4 walls and a bed for cheap.
Extended Stay America: Near the Palm Springs Airport. I'm torn on this one. It was a good price and the hotel was fine. However this is the place that, on Hotels.com, the description claimed "separate living and sleeping areas" when in fact it's just a hotel room with a kitchenette in the entrance way. The hotel claimed to not know anything about it, but here it is 6 months after I bitched, loudly, to both the hotel and hotels.com and the description remains. So I don't hold them in much regard in terms of ethics right now.
Lawrence Welk Desert Resort: This is a big community of timeshare condos that are also rented out hotel-style. We got a good price on it one year. Since they're condos, it's a bedroom with a separate living room w/sofa bed and a kitchen. Great choice if you can get a deal.
We've found that having a kitchen in your room is key. Saves a lot of time and money to be able to cook your own breakfast vs. dealing with a restaurant.
There are smaller houses for rent, though the price doesn't always scale down linearly with house size (i.e., it may not be as good of a deal to split a 2 bedroom house between 2 people as it is to split a 4 bedroom house between 4). But the agencies we've rented through are:
http://www.vacationpalmsprings.com/
http://www.palmspringsrentals.com/
http://www.homeaway.com