I am freaked out also about our trip to Madrid in February as "cwchappell" too.
. We are also staying at Hostal TIJCAL, they offered a discount for cash for us too,I ask the same questions :- does this mean we will be robbed out side of the hotel we would appreciate any other suggestions also.

For all those who don't know (and that's probably the majority of you), Hostal Tijcal is just outside the west side of the Plaza Mayor in Madrid.

I stayed at the HR Tijcal for 6 days with my girlfriend and we never felt unsafe in that area.
Kati, if you are worried about carrying cash to pay your bill, they have in-room safes that you can use. You can probably pay them a day at a time, too.

Hostal TIJCAL..is there an ATM machine near by,or should we get cash from a bank ?