Be careful: there are two 'Donde German' hostels, which are under the same ownership, and reviews may cause some confusion. There is one, the older one, that is about ten minutes walk out of town, and a newer one that is centrally located (on Brasil St., I believe), and is very smart and spacious. We stayed in the newer one for five nights in November of 2011; and I know nothing whatever about the older place.
I think we got the best room--Room #6--in Donde German (Mark II), upstairs, with a huge picture window facing the volcano. It was priced like a somewhat expensive 'hostel' but seemed like a 4-star Boutique Hotel. We had the run of a huge (if poorly stocked) kitchen; a swimming pool; internet access in the office; a perfectly comfortable bed; and a beautiful room. The place we had at first booked, 'Ecole!', we declined to stay at, in the end. We learned that we wouldn't have any access to kitchen faciltites at all, even to make a cup of tea or coffee. (Nor did they have even a Thermos we could use for hot water.) We walked a couple of blocks away to 'Donde German (Mark II),' found that they had a great room at only slightly more, and couldn't believe our luck. We had intended to stay three days, and wound up staying five.
(As I say, the kitchen at the time of our stay was very poorly stocked: one rather dull chef's knife; one glass cutting board that wasn't really a cutting board at all but something to keep hot pans from burning the counter tops; a few, too-small fry pans with handles that are wobbling or missing; and so on. Spend a bit of money on the kitchen! An absolute fortune has been spent on other aspects of this beautiful place.)
Pucon makes a great base for some beautiful walks. We loved seeing the 'Ojos de Cabriagua' (sp?) waterfalls, and the walks we took in the mountains, in the Herquehue park, especially the 'Tres Lagos' walk. Pucon is worth a few days. It is 'touristic' in a good sense, meaning that there are lots of provisions for people who want to get out and do things.
This review is the subjective opinion of a TripAdvisor member and not of TripAdvisor LLC