Learn Dutch: Wij zijn erg teleurgesteld in het hotel. - We are very disappointed in the hotel.

Yes, it does! This is a fixed preposition. Luckily for English speakers, it matches perfectly with the English phrase "disappointed in". If you want to say you are disappointed in a person, a result, or a hotel, you use teleurgesteld in.

Can I use heel instead of erg in this sentence?

Yes, you absolutely can say Wij zijn heel teleurgesteld. Both erg and heel mean "very" and are mostly interchangeable. Erg is often preferred when talking about negative feelings or situations, but heel is completely correct here too.

The word teleurgesteld looks like a past participle. What verb does it come from?

It comes from the separable verb teleurstellen (to disappoint). To form the past participle, the -ge- gets sandwiched between the prefix (teleur) and the main verb (stellen). In this sentence, it functions as an adjective describing how "we" feel.

Since teleurgesteld is a past participle, shouldn't it go at the very end of the sentence?

Past participles usually go at the end of the sentence in Dutch. However, prepositional phrases (like in het hotel) are an exception. They are often placed after the past participle to make the sentence flow better.