I stayed at this hostel which by the way, is literally right in the center of the city, the location was the best part. It's not the greatest place to meet people if that's important to you. The place seemed clean but it was very run down. Our bathroom was cleaned everyday and we had fresh towels waiting which was nice. One of the huge negatives was the bed, it was so hard and I had a difficult sleep each night. Overall, it's a run down place but it wasn't bad. Small, but that's how everything is.

Stayed there for 6 nights with my girlfriend in a double room, last week in April 2009.
The double room with bathroom was deacent size and was cleaned every day. The beds were great. The walk up the stairs was not a big deal.
The hostel is cheap and the people are frendly! Loaction is superb and just a short walk from the metro station! The area is lively during night hours, specialy on weekends.
Would stay here again and again and again....

I stayed there for 3 nights in the end of April/09.
The little single room was cleaned every day, the shower and toilet is shared, but I didn't have any problems because of it and they were extremelly clean, except for the tower which seems to be washed with no softener at all. The doors were a little bit noisy and you can hear every sound from the corridor. There's no much service, but for the price I couldn't complain. The bed was excelent and comfortable.
Considering that I am a solo traveler woman, I thought the location a little bit strange and frightening (maybe because I arrived at night), the building was old and there's no elevator to go to the 5th floor, the street was in construction (as many other places in Madrid) but very near to the subway.

We enjoyed our stay at Hostal Las Murallas. Unfortunately, we got lost on the way, as the directions suggest that it is a three minute walk from the subway. However, there is no indication which way to go.
Once there, we found it to be clean, and the family, very kind. If you are used to/prefer a comfortable bed, look elsewhere. Also, by stating that it is on the fourth floor, what they really mean is the fifth, since floor one doesn't start until you are up one of five double flights of stairs. I would not suggest this hostel if you plan on drinking, getting up the stairs was hard enough sober, and we are fit.
The wi-fi was great, and the location even better.