Great place in the perfect location. If you're headed to Melbourne I can't recommend Fitzroy highly enough – and this would be the place for you to stay when you get there. Lots of character in and around the streets off Victoria – great restaurants, bars, cafes etc. The place is very central to everything you could possibly need. It is well heated in winter – cosy warm in fact. The kitchen is well appointed and you get great natural light through the whole place for most all of the day.
As for the local dining options, I would highly recommend Riso – which won't be there for much longer, so if you get to Melbourne before October 2022, book a table. They're also only open for dinner on weekends. Can also recommend Marion and Poodle Bar in the opposite direction. Don't let the name put you off (Poodle Bar), it's fabulous.
Right at your doorstep you have a terrific bagel shop (Mile End), which also does good coffee, and one of the better wine shops you'll come across is at the bottom of the street. If you fancy a Guinness on tap, the Napier Hotel is nearby and the pour is good.
All up. The place to stay.