Thanks MadridMan! I just heard back from my friend in Madrid and he was referring to something on a Calle Dulcinea, not the Hostal! That, combined with your stamp of approval has me quite relieved! Oh, and I'm not expecting a 5-star hotel--I just meant that it's near one (Hotel Palace, I think?) and usually you don't find those in bad neighborhoods.
Thanks too for your site--it's been really helpful. Can you temporarily move to Germany and start a FrankfurtMan? We're headed there after Madrid/Barcelona.