I just got back from my honeymoon in Switzerland. We saw what looked like a decent hostel on the main "strip" that the train station is on. We stayed at a nice hotel in the older section of town for $130/night that included breakfast. We packed our lunches off of the breakfast buffet (rolls, cheese, and salami), so it was a pretty good deal (we were spending about $15/day buying similar lunch stuff at the grocery stores).
Airfare was cheaper for us to Zurich. Switzerland is small and easy to get around in via trains, so don't limit yourself to a single point of entry...
Having a Swiss rail pass is a great idea. We bought a 5-use pass that allows use on any 5 days over a (multi?) week period of time. The pass gives you half off on the lifts that get you halfway to the climbers' hut. Note that they do NOT stamp your pass for the lifts, so you don't have to eat a day on your pass by using the discount.
When do you plan on going, and what route are you doing? I found it VERY hard to be so close to the Matterhorn and not climb it. I will likely head back over as early as next summer.