Correct: Alarcón is on the way to Valencia...that's actually how we ended up there, as we were headed to Valencia.
Most of the paradors are monasteries, pazos, etc., but Alarcón is all castle. The pazos are more in Galicia, as that was more of the style there.
Although not a castle or a monastery, I recommend the Hotel Acueducto in Segovia, as long as you get a city-facing room. I've stayed there twice and have gotten a city-facing room both times. We had a little balcony which faced the aqueduct and the city walls. With the golden lights illuminating the city at night, the view is "sin par". Since the entire casco viejo is a monument, you won't feel as you're not inside a castle...you'll feel like your inside history. (Besides, at the Acueducto, you're only about 50m from Mesón Cándido and darn good cochinillo)...