I stayed at three hostels in Madrid back in 2010 – RC , Mad Hostel, and Las Musas. Las Musas, right off the Tirza de Molina metro stop, was my favorite one. I forgot to take photos of the inside, but the place has a nice huge kitchen (with free breakfast) with WIFI as well as a lounge area with couches and WIFI available. I should note that the WIFI is not extremely reliable — it was constantly going in and out while I was there, but it worked well enough to send/receive email. Skype? Not so much.