I would agree that Munich is quite clean. In terms of your lodging I would highly recommend staying in the city.

It will be easier for you to navigate and in the long run you will probably make up the money you would save (staying on the outskirts), by not needing as expensive transport tickets (these are good for buses, Ubahn, Sbahn, and straßenbahn).

A large centrally located hostel in the city is called Wombats. You can check it out here: http://www.wombats-hostels.com/munich-hostel/index.php

Please let us know if you need any more recommendations! There are lots of inexpensive and great restaurants etc. that I could highly recommend.

Tschüß!