Australia has a lot of good hostels. A few recommendations are BIG, Wake Up!, Central YHA, Railway Square YHA and Original Backpackers in Sydney; Greenhouse, Friendly, Industry and Urban Central in Melbourne; although it really depends on whether you prefer a big clean place with top facilities or a smaller hostel with more atmosphere.
See the hostel reviews on the BUG Australia site for reviews of Australian hostels:
http://www.bug.co.uk/reviews/hostels..._asc/index.htm