My husband and I spent three nights at Tale of the Sea, which is literally part of the walls of Diocletian’s Palace. I loved the location; everything was in walking distance and easy to get to. Since the windows face the Riva, which is the esplanade separating the palace and Old Town from the harbor, it could be somewhat loud (there is a club across the street that had a thumping bass going on until 11 or 12 on one of the nights), but I will say that the stone walls are thick and if the windows are latched closed, the sounds of the main drag were barely discernible. The homes immediately adjacent to the building are not as well kept as the inn.
There was unfortunately no communication about check-in procedures even though I had responded promptly to their request for our arrival time, When we arrived at the stated time, there was some confusion as there was no one to meet us and we didn’t have a way to get in, so had to call for the codes.
The room is lovely albeit small, which wasn’t an issue, since we were always out exploring the town.
A note about location- I personally loved being inside the palace walls but would caution anyone who isn’t great with stairs- and LOTS of them- that it might not be for you. You have to carry your luggage up and down many flights of ancient limestone steps to get in and out and also use them to get anywhere and everywhere within the walls, so you might be more comfortable outside if mobility is a concern.