Just got back from a two week tour of paradores, using a special promotion called SEMANA DE ENSUENO. Each night cost only 8.500 pesetas (a little over $50 plus taxes). Anyone interested in the paradores should go to the website, parador.es. Look for the great deals: 5 night cards, age 60+ discount, youth discount... you can really do well at these amazing places as long as you don't need to travel during the absolute high season (aug-sept). My favorites, all within a few hours drive/train from Madrid: Cuenca, Almagro, Guadalupe and Merida. The parador in Chinchon is lovely but the town itself is pretty empty. Also: these paradores all had great pools and gardens!

As for Madrid, stayed in a great apartment with living room, huge bedroom etc. for 20 thousand a night, three people, in Arguelles. Apartamentos Rosales. Pricey but VERY worth it if traveling with a kid.

saludos y que lo paseis bien todos en Madrid!