If you want really cheap accomodations, look farther down the strip to the old hotels. I stayed in the Stratosphere a few years back, kinda cool hotel at the far end of the strip for something like $50 a night at the time. (Awesome restaurant at the top too, but you'd blow all your room savings eating there.
Shuttle buses are very frequent along the strip.
Near Mandalay, yeah Luxor connects, or I think one or two down from there is Treasure Island....never priced it but it looks like it should be cheaper than its neighbors.
Incidentally, for folks who haven't seen Mandalay's new add-on "The Hotel," I stayed there a few months ago, and thought it was great. I'll try posting some room pics later on.