Thanks Maria and Fred for your input. I would say the Villa Real is at the top of the list by far and most likely we will definitely stay there (especially Fred with you mentioning a tapas crawl - we love tapa bars too).

Maria - yes we are flying from Venice to Madrid the day the cruise ends, its a forced overnight since the only flight out of Venice we could get on with miles, misses the flight to Dulles. But now I am thinking it might be worth moving that flight to the next day and allowing ourselves a full day in Madrid, as on the 17th we don't arrive until 6:00pm, so we wouldn't have much chance to sightsee.
I'll keep you'all posted on the final outcome. :)