Second Chocolateria San Gines for churros and chocolate. So good.
Restaurant Sacha, which is a little out of town in Chamartin (a residential section of Madrid to the north). This was my start to Madrid, was outstanding, and is a place where chefs go to eat.
Casa Dani for Tortilla.
I enjoyed all the tapas at Bodegas De La Ardosa at Calle Colón, 13.
The seafood at La Tasquita de Enfrente was excelellent.
La Lloreia was a sleeper hit. Was recommended it on Hungry Onion (now that Chowhound is gone, it is where everyone went), and it did not disappoint. It was so good, so creative, and so reasonable!
Barmiton is a really good bar and restaurant in La Latina. It isn't on the famous Tapas street, but just a block or two from there. Also, right down the road is Tresde who does great French food with Spanish flair at a reasonable price.
Also, all the restuarants and bars at the Edition are worth checking out. All really, really good with world famous chefs. The hotel is outstanding.