My husband and I spent 3 nights at
Hostal Las Fuentes . It is easy walking distance from old city attractions, and we didn't mind hoofing it to the Prado or the Museum of Archeology either. For a double it was $57 per night. The rooms are clean, and cheery, but very small. The bathroom was pretty hard for even one person to negotiate, but the price was right. I made the mistake of asking for a matramonial bed, ie to get a true double, not twins. But it slumped horribly, and they used this funky one long pillow and for two people it poses a real problem if you like to turn or bunch your pillow in the night! So go with twins! (I guess I could have asked for different pillows, but I didn't). I must say the manager was very kind to let us keep our luggage in the office when we arrived at 9 am from our plane. He got us into a room by noon so we could crash. Walking around in Madrid those first 3 hours in a groggy fog was not too pleasant, but the rest of the trip was great. I've also posted my comments about the Paradors which I highly recomend.