Itinerary for May trip to Spain

I think that's a good itinerary. The only things I would suggest are that...
...you book your trains for your Toledo daytrip as soon as possible at www.renfe.es. That train is very popular, and if you want to maximize your day there, then you want to be assured you're on the trains you want.
...you book your Barcelona-Madrid trip on the same website...you might still be able to get fares at 60% off, the "Web" class of fares.
...you take the bus from Madrid to Granada. It's only about half an hour longer, timewise (at 5 hours), but the fare is about a third of that of the train, the schedules are much more frequent, and the scenery is nicer. You can check schedules and fares for that journey, plus Granada-Nerja buses, at www.movelia.es

We did a similar trip in 2005 - Spain is great!

You might consider the overnight train from Barcelona to Granada. We did this and it worked great. Barcelona is good for three full days, two days with one of those being the day of arrival is quick. Barcelona is nice, but for me Seville and Madrid are even better. Granada is nice city in addition to being a must see of course for the Alhambra.

The Madrid day trips are all highly recommended. Five nights in Madrid is not a lot though with three days devoted to day trips. We did the same on the trip mentioned above and felt as if we could have used more time in Madrid itself. Bus is best for those day trips -- it sounds harder but really it's not.

It's a busy itinerary, but you can't go wrong visiting the places you are visiting. Three one night stays in a row may be a lot. I know how hard it is, I am struggling with the same trade offs in planning a trip to eastern France right now!

I flew to Madrid on Sept 6, 2009.
I took the AVE to Sevilla. I also took a train to Granada.
I didn't book any of my train tickets ahead and had no trouble getting from place to place.

Oooops! Left out one....booking your AVE tickets Sevilla-Madrid ASAP....again, to take advantage of the 60% off fares, if there are still any left.

In Sevilla, try the King Alfonso Hotel, it's part of the Starwood hotel chain so you may find some deals on that website. The hotel is beautiful, centrally located and a great restaurant.

Be aware that the UEFA Champions League Final (soccer) is scheuled May 21-24 in Madrid. Also Barcelona is in the Quarterfinals. They won it all last year so should they make it to the finals...it'll be crazy!