My girlfriend and I just recently got back form a couple of weeks in Spain and I am slowly getting around to posting our reviews of the hotels we stayed in...

In Granada, we stayed at the Casa Morisca. http://www.hotelcasamorisca.com/e_index.html
I would recommend it without hesitation. We paid about $100 per night for their basic room, but it was well worth it. Excellent location, superb views, wonderful rooms, and great service in a historic building that has been recently remodeled. I would strongly recommend it as an alternative to the more toursity up-scale hotels (e.g., Washington Irvin is one that comes to mind). If you're looking for a nice place to stay in this price range, you will not be disapointed as the Casa Morisca oozes history and enchantment.

Hope this helps