Hostal Penelope is a perfect place to stay, the only exception is noise from the street -- however that was easily solved with earplugs. Our room (302) on the third floor (there is a lift), was reasonably spacious, had two small balconies which overlooked the street below, and there was also a view of the snow-capped mountains, which was very stunning. The room was cosy, very clean, and had the best air-con I've ever seen. There's a remote control with "too warm - too cold" on the bedside and the air-con (which was needed) was very quite. To add, the staff were very friendly and extremely helpful. This, for me, was helped even further because one of the staff members is Swedish. The tapas on sale in the attached bar/restaurant are superb, give the assorted (sortidos) tapas a go! On the day we went to the Alhambra they made very yummy bocadillos for us even though they were very busy. The location is unbeatable for everything especially nightlife!
To top it off it was very very reasonable priced - we would definitely stay there again!