There are a lot of very nice hotels in Madrid.

In terms of area, luxury, etc., I would suggest the Westin Palace or the Villa Real. They are within sight of each other, and one half block from Starbucks, the Tourist Office, the Prado, and the Thyssen-Bornemisza Art Museum. Not to mention, an easy walk to Puerta del Sol, the Atocha train station, and the Congreso de Diputados if you have a hankering to see Zapatero.

By the way, my wife went to high school with Dwight Henniger, the police chief of Vail.

Good luck !!