Doesn't need to cost a fortune, doesn't need to cost pennies to be memorable. Of course the circumstances could be different, - business lunch, romantic place, people watching, - but still: what would be your immediate reply when asked "where would you like to go for lunch or dinner in Madrid?".

There are so many good options, depending on the type of cuisine you're interested in. Have you looked at Maribel's Dining Guide to Madrid (www.maribelsguides.com)?

I would also take a look at Gayot.
http://www.gayot.com/restaurants/searchresult.php

Read their review if you see a restaurant that catches your eye.

Casa Alberto from 1827 is a traditional Madrid restaurant still popular with locals, just off central Plaza Santa Ana: http://www.casaalberto.es/
http://www.tripadvisor.com/Restauran...to-Madrid.html
Photos and reviews in Spanish: http://11870.com/pro/casa-alberto

Casa Marta is a lovely little restaurant serving Madrid specialities and very popular with locals. Close to the Opera and Royal Palace. Bargain three course Menu del Dia with drinks included at lunchtime for 10,50€.
http://www.restaurantecasamarta.com/rcm.htm
http://www.tripadvisor.com/Restauran...ta-Madrid.html
The Menu del Día: http://gastronomyblog.com/2010/07/01/casa-marta-madrid/
Photos and reviews in Spanish: http://11870.com/pro/casa-marta

There are way too many. Maribelsguides

Thank you everybody for taking your time to reply.
I still have time, - will be there in a month, - so surely going through all the literature. The problem with the guides is that in my experience it's a roulette. Sometimes the recommendations are excellent, sometimes after the meal you very much wondering what was the fuss about. Other than that, as you have commented, there are too many choices in a city like Madrid - so which place to chose? That's why I'm looking for personal references of Fodorites, worked for me in many places.
And yes, you are right, need to clarify. Obviously Spanish cuisine is preferred (Madrid is still in Spain, isn't it? and "traditional, popular with locals" is the key.

Thanks again