Nanglo West, a branch of a Kathmandu-based Nanglo's and Bakery Cafes, has a pleasant indoor and outdoor seating area. It serves really good Nepali and Newar food, and decent Western food.
Doko Restaurant has Tibetan and Newari food.
Hotel Srinagar has a good restaurant.
Mo:mo Center
Great little family run restaurant with excellent momo's 50Rp, chowmein (40Rp and thukpa 40Rp. Hidden just behind the small temple in the center of town.