Last time I went to key west I stayed at a place that was the second story of a cigar shop. It was right on Duval street and walking distance from attractions. It was a nice place, clean and friendly. I think there was only 3 or 4 rooms for rent. I can't recall the name of it though, and I actually looked for it on the computer two days ago since I'm thinking about going back this spring.
Don't know about rentals by owner, but we stayed at the Duval Gardens B&B and it was nice and close to everything. Real breakfast, 2-story wrap-around porch, pool, nice rooms...