I just returned from a week in London. I've been numerous times and have seen a pretty good chunk of the city. This last time I stayed at the Hilton Double Tree Victoria which is across the street from Victoria Station. The hotel was actually quite nice. From there it's one easy transfer and you are at Heathrow in under an hour. I find that Victoria station is pretty central for London. 5 minute walk to Buckingham, 10 to Westminster Abbey/Parliament. Belgrave Rd which is in the area also has a number of other hotels.
I thought the Eye was lame. Before the half way point I was bored and regretting spending that much money. It's nice to look at though. The view from the Monument (or even St. Paul's) is nice and I'm sure there are numerous other cheap options to get a good view.
Tower of London was a bit of a pleasant surprise for me. You could really spend most of the day there. It houses the crown jewels and if you like weapons and armor they have it in spades. I found a Parliament tour interesting (Saturday's only) and for 2 days I'd choose one of Westminster Abbey or St. Pauls.
The Museum of London was pretty cool if you want to see how the city as evolved since it was first settled. I'm not really into museums when I'm traveling since they take up so much time. I'd rather just be walking around and exploring the city.
Definitely see a show. I went to Phantom of the Opera and quite enjoyed it as it was like watching a magic show (illusions!) at the same time.
If you are trying to cram in as much as possible, stay in specific areas or else get a tube pass so you can get to the sites as quick as possible.
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