Have finally found a minute to post a note about the 3 hostals I stayed in last month in Madrid. I had a wonderful 5 days there and loved it, then spent time in Seville and Barcelona (I'll try to post about those hostals later).

A month or so before my trip I booked Hostal Chelo for my first 2 nights, after extensive reading of positive reviews on this board. Great location near the Gran Via, pleasant room with bath for 30 euros, but though I'd booked and been confirmed for 2 nights, when I arrived the management said I might have to move for the 2nd night into a tiny windowless room with no bath, because a couple was possibly going to check in. I didn't think that was fair and though I wasn't really mad or anything I wasn't very happy about it.
I coincidentally had some friends staying only 2 blocks away, so though the couple hadn't arrived and I might not have had to change rooms after all, I decided to move the next day to the hostal where they were staying.

Number two was the Casa de Huespedes Dolcevita, Calle de San Bartolome, 4, and it was pretty fun. Three flights up, no elevator, funky, comfy lobby decorated with movie photos internet available (2 euros per hour). My room was tiny but cute and, strangely, had toilet and shower both in the room (not in a separate room at all), but it was fine and only 25 euros, continental breakfast included. I stayed there for 2 nights and thought it was fine, but then another friend was in town so I moved into another hostal just one block away to share a room with her.

Number 3 was the Hostal Vazquez de Mella, right on the Plaza Vazquez de Mella, fantastic location with restaurants all around and little kids playing soccer in the plaza. An elevator up to the 4th floor, a little cafe right downstairs. It was divinely quiet at night, much more so than the other 2 places. Our double was 48 euros, and the room was lovely, two double beds and a very nice bathroom. There were little sitting rooms throughout the hostal too, like personal living rooms with couches, lamps, and even magazines. Very nice.

All of these were within a couple of blocks of each other near the Gran Via, a neighborhood that's easy to get around by bus, walking or metro, interesting streets with lots of good restaurants. And there were literally a dozen or more hostals within a couple of blocks, so lots of choices of places to stay.

Wish I could have been there longer!
Martha