Seems kinda obvious that the right approach is to describe a number of interesting local places (with remarks on style, your rating and cost), and watch how the guests react. If five local favorites get no positive reaction, maybe it’s time to start naming some chain choices.
It depends. If, for some reason, the out of towners were millionaires, then I’d recommend the local fancy pants place. If they were normal folk, there’s only one choice - there’s a BBQ joint at the end of the road.
Pick wherever you want. They are treating YOU for hosting them, right? 
This. If I am a houseguest and wanting to repay their hospitality, I want them to pick where they want to go.
This. Always local. If they’re visiting, what’s the point of taking them to a chain they can go to anywhere?
I live in a restaurant centric town, so a local place is where it’s at. I’d probably offer options, not based on price range, but on cuisine. I’d be more like “we can do Thai, Szechuan, Indian, Ethiopian, Sushi, Lebanese, Greek, Italian, etc.” and see what they like. It’s easy for me because I can select all the local places I already like as the options, and show off my town.