There is a gay area "CHUECA", but I would rather stay on the main strip which is just a short walk from the Gay bars. Any hotel on the Gran Via should be good and it is not a long walk to the bars. There is also a huge gay bar where everyone ends up at at the end of the night which has a huge dance floor which is hardly utilized but the large dark room sure is packed,"REFUGIO". Madrid a beautiful city with so much culture. Have Fun and Good Luck. Just remember no wallets in the dark rooms.

http://www.softguides.com/madrid_gui...t/ambient.html