A hotel at MZ would be marketed as a different experience to what WORZ has to offer: WORZ is a real "Safari" zoo experience - it is a 45 minute drive but that feels like a long way away in a sense. Even as a Melbourne person (I live 5 min from MZ), I always say "I'm going down to Werribee" as if it's not part of Melbourne (even though it is). It is a place people go when they want to be out of the city - or if they want to at least feel like they are out of the city.
A hotel at MZ would be great for a different reason: the guest is at a zoo - but right in the middle of the city! Locals could even come straight from work, spend a night at the zoo hotel and then go straight back to work in the morning (in the Melbourne CBD). It's different - but Melbourne is different. Melbourne is quirky, and this sort of thing would work here. Around MZ, you have some very funky inner city suburbs (Brunswick, Moonee Ponds, Parkville, Carlton). I can see this idea working.
Phasing out elephants needs to happen - and I think Melbournians would accept it in exchange for a zoo hotel! I actually can't think of any other animal species (that MZ don't already have) that could be anywhere near as high profile as elephants anyway - so why not try the hotel idea - especially if they use the Canberra Zoo idea where the hotel rooms open onto an animal enclosure. My point of difference is that they make it smaller species which don't require much room - such as tamarins, squirrel monkeys, meerkats, serval, Tasmanian devil, fennec fox (nocturnal species may be best).
This is going to be interesting over the next 2 years - there could be some major changes in quite a few precincts at MZ!