Yes, I live in Madrid; actually, I'm madrileño.
The thing between markets and supermarkets is really difficult, you cannot say something general, for example, big chains like Alcampo or Carrefour usually have some kind of sale for a particular product which usually is very cheap, but when you want to buy something different from the sale, there is not such differences between a supermarket and a good market or shop and you get better quality and treating(maybe they can let you taste before buying to choose better). There are also shops and markets that are more expensive, that's why you should ask before.
Madrid doesn't have to be cheaper for general stuff than other towns, it is even more expensive sometimes as taxes are bigger, prices of locals.... It depends on the place and the product, I think that places like Palencia, Burgos,... will be a little bit cheaper if you go out of the turistic area, but I don't really know.

Sorry I forgot, sorrounding areas to Madrid like Alcobendas, Mostoles, Barajas, etc.. have different prices depending how powerful is people in that neibourghood, but I think also quality depends. Anyway, people from that area buy there, so prices differences must be such that going to buy to a different neighbourhood doesn't worth. Maybe, like Mclarke says, 200 pesetas in a sherry bottle...

[This message has been edited by MadridMan (edited 01-29-2001).]