If you are just there for the day, the downside to using an ATM is what to do with the leftover currency. A lot of people end up taking it home and hiding it in a drawer and never using it again. So even though the exchange rate was good, your "real" exchange rate is bad, because you never get the use of the money.

As an aside, many receipts at restaurants and stores in Colonia print out the charge in 5 currencies automatically. The bottom of the receipt will show the total in Uru pesos, Arg pesos, USD, Brazil Reals, and Euros. You can pay in the currency of your choice, after seeing what the different rates are.