Madrid - stay in city or outskirts?

I would stay in the central part of the city. Ease of access to the various (main) sites, train stations, and the like would be the main reason. Have not seen much in the outskirts of the city, but there might be something. None of the guide books suggest otherwise.
Somewhere near the Prado, Puerta del Sol, Plaza Mayor, or Royal Palace would be my choice. From any of these you can get to any other area fairly easily on foot or on public transportation, and you are in the heart of a great city!

I would stay in the city. There are plenty of bargain places to stay. My friends and I fell in love with Madrid.

If you are into night life and the beating heart of the city, stay in the center. If not, stay in Toledo, a deeply soulful place, and see Madrid as a series of day trips.

that depends - how long are you staying and where are you going after Madrid? If you're staying a few days, I'd recommend staying in the center (Hotel Europa is my pick). Tripadvisor has plenty of recommendations in every price range. Pick a spot close to a transportation hub and you're golden. If you're only in it for a quick stop on the way to the airport or elsewhere, then the outskirts would be ok. I also ditto the suggestion to stay in Toledo (great city) or Segovia if you're not interested in the city bustle of Madrid.

We stayed in Madrid last week and loved being in the city. We've heard great things about Hotel Europa (near Plaza del Sol). We actually stayed in Hostal Gonzalo to save some money. At around 56eur a night, the rooms were secure, adequate and clean. It was also in a less touristy area of town letting us live a little more like locals. We would stay there again.

Definitely stay in the center of the city. If by outskirts you mean a smaller town like Toledo, my answer would still be the same. Better to do Toledo as a day trip from Madrid than the other way around.

Definitely stay in the center. The metro rides to the outer areas can be long and may required multiple changes. I stayed in Hotel Europa a few months ago and really liked it. Ask for an inside room and it will be very quiet.

Peter, I also recommend staying in the City. I'm just back from spending 6 nights in Madrid over a three-week period. Stayed at the Hotel Europa, and was there during the protests and the Spanish Election as well as two weeks later. We had an outside room, on Calle de Carmen, and it was loud with the protestors outside prior to the election. But, the windows at the Europa were very thick and the noise, as loud as it was outside, was not bothersome to me. However, my friend had to wear earplugs to sleep (she is a light sleeper). Staying downtown puts you right in the heart of what has become one of my favorite cities in the world. Stephen