For those of you that can't get into Sherm's place (or don't want to stay at Sherm's place), there's the Buena Vista Hotel just down the road from Taronga in Mosman. It's mainly a pub - and a lot of the zoo staff often go there after work - but they have some rooms upstairs. You might be lucky and fine one with a bathroom.
A bit more upmarket is the Cremorne Hotel (formerly known as the Metropole), in Cremorne which is 2 or 3 kms from the zoo. This is where the zoo puts up visitors from other places that the zoo has invited over for whatever. From what I've heard, it's a good hotel/motel, and it's right in the heart of Cremorne - IGA supermarket, butcher and newsagent on the ground floor, shops all around, movie theatre literally right across the road. Also on the ground floor is the Lounge (like an upmarket pub), and on the second floor is a piano bar, pool hall and a nightclub on weekends. Another place zoo staff are known to frequent.
As Afro has already said the Manly Pacific is very good but very expensive, as are many of the hotels in Manly. Manly is a 20 minute drive from the zoo and is a major tourist and backpacker destination so there is no shortage of places to stay. Lots of pubs and one hell of a nightlife. Plus there's the beach. Haven't looked at hotels in Manly so the RACV accomodation guide (or NRMA version for NSW members) should help you out with your selection.
Hope this helps.
Hix