Generally when travelling from Quito to Cuenca a layover is almost always involved. What I do when I’m flying back into Ecuador is take the night flight from Houston to Quito so that I land sometime around 5:00am and then jump on the first flight to Cuenca. This usually results in a 2 hour layover.
What happens in most cases is the flight arrives sometime around midnight and then you will need to find a hotel to stay at so you can board your plane in the morning. There are a number of Quito airport hotels that would be available for you to stay at.
Taking the bus from Quito would ever be considered a better option than flying. Generally the trip takes 9+ hours on a bus to get to Cuenca. I would much prefer a 45 minute flight. What I would recommend is to relax when you arrive, rent a hotel and enjoy your surroundings before heading to Cuenca.
Regarding good hotels, it really depends on your budget and what area you want to stay near. I would recommend Rione, Casa san rafael, Hotel Victoria, Mansion Alcazar (a bit pricey) Hotel El dorado, Hotel Santa Monica. I would give trip advisor a look over to see a complete list of the hotels in the area that will fit your budget