WE ARE SITTING BY

the infinity pool of the hottest resort in town, the same one where Demi Moore and Madonna stayed not too long ago. Pool butlers arrange our chairs for us and bring us drinks, and we're so content that we're not even bothered by the loud group, a model and her thirtysomething friends, partying in a $175-per-day cabana nearby. The scene in front of us has all the trappings of Hollywood and it is. Hollywood, Fla., that is. For decades, this resort town that lies halfway between South Beach and Palm Beach was known more for its proximity to jai alai and T-shirt shops (think "The day's wasted if I'm not") than for being a mecca for the $500-a-night crowd. But in a surprising move for the tourism industry, some pretty big names in five-star luxury are setting up shop in some unlikely locations across the country. When you think Poconos, for example, you think heart-shaped bathtubs. But last year a new spa run by two veterans of Canyon Ranch opened, charging $700 a night and offering a $250 "lotus cleansing." Head to the Midwest and it's waterpark city except now, amid the Super 8s and Best Westerns in Chetek, Wis., is Canoe Bay, a member of the Relais & Chateaux group of ultra-exclusive resorts, where jackets are required for dinner and the wine list includes a $1,750 Screaming Eagle cabernet. Here in Hollywood, we found ourselves lounging at the Westin Diplomat Resort & Spa, having a grand time in our $650-a-night suite.

Why the sudden merger of tony and tacky? Experts credit it to everything from the real estate boom making it harder to find new spots to open in to the popularity of destination spas, a key part of most of these new developments. But there's something else going on: the boom in luxury travel, which has proven to be stronger and longer-lasting than anyone predicted. Luxury hotel room rates jumped 9.1% last year, according to Smith Travel Research, the highest increase in nearly two decades. As a result, hotels are suddenly competing over new projects and properties. "Everybody wants to be a player," says Smith Vice President Jan Freitag. Hotel developers, running out of places to put the masses of luxury travelers, have found a new answer: Open wherever you possibly can even if that means going into weird, off-the-beaten-path locations.

And while it can be confusing who would expect to see a St. Regis in Fort Lauderdale? it can also create opportunity for travelers. Since these properties are in less popular locales, they can be easier to book. During our recent trip, rooms at most of the toniest resorts in the Caribbean and even South Beach were sold out on weekends, yet we were able to book our suite at the Westin on a day's notice. And many of these hotels offer discounted rates. The Four Seasons might like to charge top dollar for its new Silicon Valley location, which has all the chain's five-star trappings. But while the nearby San Francisco property can get $500 or more for rooms, its East Palo Alto location was recently charging $275 to $325 on weekends and holidays. Canoe Bay in Wisconsin may have a fancy wine list, but at what other Relais & Chateaux property do rooms start at $300 and can you get a massage for $95?

Of course, there are differences at these hotels: The East Palo Alto Four Seasons, for one, sits just off a freeway in a neighborhood that used to be called Whiskey Gulch. Opening in remote locations often means it can be hard to find staffers versed in high-end service, so guests may find that the white-glove treatment in, say, Hawley, Pa., is not up to par with the Ritz in Paris. And no matter how luxurious the hotel, the infrastructure of an up-and-coming town hasn't always caught up. Sometimes, even finding a decent restaurant nearby is a challenge. ("You'd have to define what you mean by a decent restaurant," deadpans Dan Dobrowolski, owner of Canoe Bay. "Applebee's?")

Back here at the Westin, we are quickly struck by how nice the hotel is beyond just the pool. There are waterfalls and sculptures in the lobby, and the spa is in a serene, impeccably manicured country club setting. But when we ask the concierge what to do on a Saturday night, our enthusiasm is somewhat deflated. We could always go to South Beach, she says, which is a 35-minute cab ride away, or Fort Lauderdale, about 20 minutes. But if we want to stay in Hollywood, among the biggest attractions are a new casino and the city's beachfront promenade.

Opting for the latter, we know we aren't exactly heading to Rodeo Drive. Still, we are somewhat surprised to find a run-down strip of restaurants and T-shirt stands, as well as hundreds of French-speaking tourists (it turns out Hollywood has long been a popular spot among French Canadians). We have a mediocre margarita at one of the bars, but seeking a little more sophistication, we decide to check out downtown Hollywood, which has been undergoing a big redevelopment initiative lately. Here, we find a mixed scene: At night, Hollywood Boulevard is awash in twinkly white lights, and the Italian restaurant recommended by our concierge is surprisingly good. But when we return the next day, we notice there are a half-dozen empty storefronts, a few lingerie stores, several empty restaurants and a pawn shop.

Lou Mezzullo and his wife, Judi, were surprised to find the Westin nicer than some Four Seasons they have stayed in especially when it came to details like turndown service and food. But when Judi ventured off the property, she says she was shocked at how run-down the town was. "I swore I heard a gunshot," she says. (Michelle Shulman, director of publicity for the Westin, says that is "absurd.")

Perhaps it's not surprising then that the Westin has invested big in creating a mini campus of restaurants and nightlife at its own property. In the hotel itself there's an upscale bar and lounge, an Asian-fusion restaurant and a steak house serving up $83 cuts of Kobe beef. Across the street at an annex property, there's Nikki Marina, the latest offshoot of the Nikki Beach hot spots in South Beach and St. Barths. The next night we stay local, hitting the hotel bar, then Nikki Marina. And while you have to cross a highway pedestrian bridge and walk through a parking structure to get to it, it was one of the few places we saw in Hollywood that did offer a current feel, with an upscale, South Beach vibe.

For some hotels, being the first upscale property in a market is a big risk. "The challenges are immense," says Dan Dobrowolski of Wisconsin's Canoe Bay. "You have no natural drivers for your property." Consultants he hired told him it would never work: People will never pay more than $99 a room, they said, advising him to open a less upscale hotel. He ignored them and so far doesn't regret it: Revenue has increased every year since the hotel opened in 1996. He says his out-of-the-way location is a major factor: "There is nothing even remotely like us within 400 miles in terms of quality."

For its part, the Westin was an $800 million venture, the largest hotel ever to open in South Florida, in a market that was considered off the map. "In Florida it was Mickey Mouse or South Beach," says Shulman. The hotel's strategy to draw crowds: Make the hotel a convention destination. The Westin has 998 rooms and 209,000 square feet of convention space; more than 80% of customers are conventioneers (when Demi Moore and Madonna were here, it was for a Kabbalah convention).

Even so, the hotel has been marketing to a hip leisure crowd recently. New ads show young, stylish thirtysomethings on vacation. And indeed, Cassie Fontana and her friends, the group lounging by the pool, could have been pulled straight from the photo shoot. "We love it here," she says, sunning herself outside the group's cabana. For a moment, you might almost feel as if you're in the real Hollywood.