Okay, here I am!! I just now saw this thread! I wish I had noticed it earlier.
Mike, are you only planning on being there for one night? And in what month? See, what the hotels on Catalina Island used to do (and I assume they still do) is set a 2-night minimum up front and most of them won't take reservations for one night during anything resembling peak season (usually May - September). BUT, what they used to do and I assume still do is let you have one night if they have availability at the last minute. That happens, of course, when people have to cancel or back out and rooms become available. Certainly the hotel wants to make some money, so they will take a last minute one-night stay rather than make no money at all. But you kind of have to keep calling them on it up until the date you are planning to go, and then it might all be very last minute.
Otherwise, if you are staying two nights and booking in advance, as PrincessInOz suggested, the Hotel Metropole is a popular choice. They have begun to revamp a few hotels on the island in this new kind of makeover they are giving it. The Hotel Villa Portofino is pretty good. The Hotel St. Lauren is pretty good. I have stayed at the Hotel Catalina and it's very basic. Nothing snazzy at all. It's more like a beachy bed and breakfast-y type of place. I have also stayed at the Seaport Village Inn, and that was pretty good as well. I am sure that any of the rooms can technically fit 5 people (2 beds and a rollaway or sofabed or something).
I have also had really good luck renting little cottages - and that may be the way to go for you with 5 people. You can get cottages from any of the realty places (Hunt Realty was the one I used for the cottage I had, and it was adorable.)
One place I stayed that was not particularly great was the Hermosa Hotel and Catalina Cottages. While they do have rooms/cottages than can accommodate 5 people easily (we stayed in one), it was a little run down when we stayed there. Granted, that was a long, long time ago, and they may have spruced it up a bit since then. It wouldn't hurt to contact them.
Avoid the Zane Grey Hotel - because that is waaaaaaaay up in the hills. In fact, there used to be a Best Western/Catalina Canyon hotel there, and that was also waaaaaaaay up in the hills.
Oh, I'm so excited that you may be able to get to Catalina after all! (Even if you have to scrap the hotel idea and go for a full day trip instead.) The Flying Fish tour has begun now (it lasts until September). PrincessInOz missed that one because the darn fish weren't out yet. The Cruise to Seal Rocks tour is good too. The Semi-Submersible is a cool tour (better than the glass bottom boat). The golf carts (get the 3 hours for the price of 2 hours deal) are the quintessential Catalina experience, and you can get lots of fantastic photos up in the hills, as the views are amazing. There is also a Safari Bus tour that goes into the interior of the island where you can see all kinds of buffalo.