Hmm. I think many Brits have their first experience of Spain on the Mediterranean coast where the quality of water is not particularly great, and this is why Englishrose has heard bad things about the tap water. I certainly would stick to bottled water in somewhere like Valencia. Water in Madrid is totally ok though!

What happens in the part of the Mediterranean coast (Practically from Catalonia to Almeria)is that it has lots of minerals. Even though is safe from bacteria and microlife point of view it doesn't have the best taste.

EU (incl.ES/PT)drinking water standards are equal to or STRICTER then most places in North America...

When I was in Madrid, I drank straight from the tap...Madrid water tasted better then the tap water of the ~20 large (1 Million+ ha) North American cities I've been too...

I have never had any problems with the water in Spain. However, I had a friend travel with me once and he drank from a water fountain in our hostal in Sevilla and was sick for a few days. Sometimes, there are just differences that can cause a reaction in your body as you adjust.

Down here on the south coast of Andalucía the water is fine to drink, but as has been mentioned, has more minerals in it than in other areas which affects the taste. I generally use tap water for making tea or coffee, and for cooking, but if I want a drink of water, I'll buy a bottle from the local chop's chiller cabinet. The minerals also tend to clog up household appliances like steam irons and washing machines, so you have to be a bit careful.
Incidentally, we've had a *very* cold and dry winter, and while we are NOT facing drought conditions, it looks like we may have water restrictions imposed on us during the summer, which seems to have arrived early this year. Some reservoirs are very low indeed and the water authorities are considering what to do.
And if you thought the Costa del Sol was always hot and sunny, we had snow and frost in the coastal towns in late January, for the first time in 50 or 80 years (depending on who you ask!)