I was in Madrid for New Years Eve 1999 (turn of the century) and it WAS a blast. I am going back to Spain in 6 days. I plan to see Madrid and Barcelona in 7 days. I am taking an overnight train from Madrid to Barcelona, and back. This will hopefully save time on my trip, and it's relativly cheap $35 one way. Definitly, if you are in Madrid for New Years, buy the grapes and champagne. They won't let you take the bottle into the plaza, but they will provide you with Giant plastic cups. Buy your champagne early, the stores were all wiped out when we went the day before, and we only found one bar open at midnight. Many opened back up around 2am.
hope this helps