This is a great gay hostel with really friendly staff - who are always willing to offer you advice on where to go and what to see - they even hand out free club passes!
The rooms are more like a hotel than a hostel, with TVs, comfortable beds and balconies overlooking Puerta del Sol square. There's also free internet and a free breakfast of freshly baked buns.
The location is excellent, you are right in the center of town, so we could walk everywhere.
Puerta del Sol Square, Madrid
www.hostelbookers.com/hostels/spain/madrid/3468/