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Try http://www.unusedrooms.com/specials/hotel/Tijcal%20I%20Hostal%20Madrid.html The Tijcal 1 Hostal is in the old quarter of Madrid and they have a special on at the moment for $69.
It has a 2 star rating.
The Hostal Tijcal I is the only hostel located within 20 meters of the traditional Plaza Mayor & the only hostel in this pedestrian area. It is also only 2 blocks from the traditional Puerta del Sol, & 5 blocks to the Royal Palace & the Almudena cathedral, absolutely in the heart of Madrid.
Hope this helps , Al
Net
I go to this site everytime I want to look for a good place to stay when travelling www.hostelworld.com. There's a variety here and lots of places to choose from. Good luck!