Yes, thank you for the details.

The lap child gets full EC261 so long as you paid something towards the travel for the child.

Downgrade in this situation gets you in a Mennens claim (see wiki) but the amount is unlikely to be a lot. My usual advice is to ask for some customer service avios instead of claiming for the downgrade, but maybe you prefer a proper calculation.

You can claim EC261 for the original cancellation due to it being TECY, see post 986 in the "reason for flight delay" thread. The delay to the eventual MAD flight doesn't matter so much, you qualified from the cancellation.