The only places I know of to smoke hooka is at some of the bars lining Houhai and the tacky neon lit bars on Sanlitun jiuba jie. These places are for tourists though and not worth it. I have yet to find a cozy hookah bar in the capital.

The Red Rose restaurant near Worker's Stadium is a cozy and fun place to smoke a hookah and watch great Belly Dancers from Xing Jiang and the food is tasty too. Be sure ti try the pomegranate wine!  You will be pleasantly surprised that the pricing is Chinese not tourist pricing (yet!)