Read through these posts and you'll see that Madrid Barcelona is best done by plane (purchasing the ticket from the Iberia SPAIN website = cheapest, says Antonio), and Madrid-Sevilla, by AVE fast train. With 5 people total, maybe you want to try an apartment situation in Madrid or Barcelona? The ones I know in Madrid would be fine for those who need one bedroom and one living room/pull out couch, but probably there are some 2 bedroom ones. Otherwise, madrid has zzillions of moderate hotels. This board likes the Liabeny and the Carlos V (the latter, run by Best Western). Also the Conde Duque (residential area).