Could do a day trip to toledo en route to Madrid- staying in madrid 2 nights. I fully realize it's not enough time in Madrid but our goal is really eating and drinking at night since there isn't much time to sightsee....

If you're interested in bars and restaurants, I would stay in Madrid. You could do a day trip to Toledo, but there is plenty to see in Madrid.

We decided to spend the 2 nites in Madrid- we will do a day trip to Segovia...

May I ask what air bnb you ended up using in Malaga? We are going there in December and are a family of four looking for a rental during our trip to southern Spain for the Christmas holidays.