There are a ton of rooms/apartments/condos for rent on the PSU Craigslist site (pennstate.craigslist.org). The locals apparently know how insane the hotel rates are. You can get a decent place for $150-$200/night, just look around under "Housing, Vacation Rentals". There are also some pretty nice places on there for a bigger price. Still not cheap, but better than $300 for a night at the Super 8.
Alternatively, if you want a more, um, reputable room, you can find one in Altoona, about an hour away from State College. In 2007, we found a room at the Ramada right after the game with no reservation (about $80).