There are definitely some VERY nice areas with Hutongs (near the Forbidden City!), but I've (accidentally inside the second ring) seen some which appeared very run down (leaky roofs, open sewers, kids not in school). I actually see your point that real estate pricing is so high (and the subway is getting so much better) that it's strange for there to be such slums. My best bet is that the government can't tear them down due to historical local pressure, but nobody except rural immigrants (who can't afford to fix them, or send their kids to school) live out a bleak existence in them (still making more than their family does back home). Even college students live in basements that are pretty horrifying. My guess is that the land value appreciation doesn't go to them.

I remember only 20 years ago and all of Beijing seemed to be Hutong... with the ubiquitous locked gates that seemed a fire hazard to me. It's no wonder that from being so common some have become much nicer and some much less so, while most have fallen to the wrecking ball.