You can stay at any 5 star hotel in Sydney for less than $500 per night. The Four Seasons (George St, The Rocks, just 1km or so from the CBD) generally has the best service.
If you can't get a room at the Four Seasons, then try the Park Hyatt, Shangri-la (but make sure you get a newly renovated room), Westin and Intercontinental, in that order.
However note that all the above 5 star hotels are only 4 star by international standards. Until Emerites opens its new 6 star resort in the Blue Mountains, you're not going to get true 5 star service anywhere in New South Wales. Note that I didn't even mention the Hilton. The service is nowhere as good as it should be, the rooms are stark and the windows are small. The problem with service in Australian hotels is that the majority of hotel workers in Australia have the attitude that, "I'm not beneath you", and as such rarely go out of their way to please guests. Furthermore, the fact that they rely on tips much less here than in the US does not help improve service levels at all.
Aside from prestige accommodation issues, Sydney is a pretty good city.
