I'd second the suggestion of staying on or near Gran Via.

We have stayed a couple of times at the Tryp Cibeles on Gran Via, primarily because of location (near Chueca but also convenient for non gay tourism too).

The hotel is fine. Nothing special either way (rooms at the front of the building on the Gran via itself should be avoided though because of the noise).
Among hotel chains, Sol Melia have many properties in Madrid (and Spain generally) and rates on their website can be very good, with frequent promotions.