The only Ruby members who get free seat selection on Iberia are Iberia Plus Plata members. It is not extended to other oneworld members.
From
iberia.com
Customers with Iberia Singular or Iberia Plus Platinum or Gold cards (oneworld emerald or sapphire) may select their seating for free from the time they make their booking and for all the people who appear on the same reservation.
You likely can book your MAD-IBZ seat for free, including XL, because your Premium Economy longhaul is pushing your domestic flight into a higher booking class. Similar to how BA's domestic connections from WT+ used to book into J.