I also stayed at Hostal Aliste in Sept 2001 (my first time in Madrid) and I would confirm Horscheck's review. I had a single room with its own shower and toilet - it was basic but perfectly adequate, although it was quite small and there was only a tiny window (hence little natural light or ventilation) from which there was no view worth describing. However, considering its very central location, I considered it good value.

I would have stayed there again last year, but they had no vacancies, so I ended up staying at Hostal Jaen which is situated in Calle Cervantes near Plaza Santa Ana (Anton Martin/Atocha). I must say that this turned out to be a much better deal. The price was about the same, but the room was much nicer - more modern, better shower, larger, more light and with a balcony overlooking the street from a top floor vantage point.

I also prefered the area, which is less busy and sleazy than around Gran Via, but it has a lot more (good) bars close by than Aliste does and the nightlife at the weekends was much better than round the main tourist traps. Its only a short walk to all the main museums, and is also easily walkable to the Plaza Mayor and Sol. All thing considered, I honestly doubt that there's a better bargain hostal in all of Madrid than Jaen.