Pre-booking hotels or go on the fly?

Personally, I would book ahead during the busy summer season. Most hostel websites give clear indications of when you must cancel by....so make sure you give them enough notice. The only thing you'll lose is your booking fee. Or, if you find nice hostels listed on the hostel booking sites, try looking for the hostel's website directory and book thru there....they'll have the latest info on cancelling bookings. Most hostels and budget hotels don't give you any break for booking early, so price won't be a concern....unless the only room left if you call a day or two ahead is the most expensive one!

I agree also. Book early, especially for summer and if you plan to stay in any of Rick's recommended hotels. There are ALOT of people using Rick's books.

Anna: Our first couple of Europe trips we booked only the first and last nights and in larger cities.
Since discovering Rick Steves 5 years ago, we now book everything in advance -- WAY in advance -- and are much happier. We don't have to spend time looking for a place, and from Rick's recommendations we know what to expect. Granted, you don't have quite the flexibility you might have otherwise, but we have found it well worth it. We carry all the information with us and are in the position to make field changes if we so desire...but we never have.

I agree, book as much as you can. Cancel if you have to, just be prudent about giving places enough notice to not get charged. Valuable time is spent hunting for suitable places or standing in line for tickets at train stations. Avoid this as much as possible - spend the time enjoying the cities instead. It's not so bad to have a schedule. Once you check things out, perhaps on later trips you will be able to travel in a more casual way, but don't put yourself through unnecessary hassle or disappointment now.

Anna - cheap, but good hostels are now online which means that they too get booked up. The good news is there are only 2 of you - if you were a family of 4 I would say book every night. If you really don't care where you stay and if you can afford to have a few places that might be a little high then you may be okay with not pre-booking. Remember though that you will need to be sure you get into each town early enough to begin the looking for a room process (TIs do shut down).

Though it wasn't part of your question I'd like to pass along a great website, www.madridman.com. Though as the inplys, Madrid, the site is not confined to just the city, but to all of Spain, it has the most extensive links page I've ever seen for accomdations, also a very good message board and info on just about anything you might want to know about Spain! The hostels in Spain are the way to go, they are not the large dorm type facilities but are family owned small hotels, I've stayed in a couple of them in Madrid and both had a/c and private bath. I recommend the Hostal Adriano which is near the Puerta del Sol and the Hostal Cruz Sol, both great bargains.