Visisting Granada for a couple of days in Sepember 2004, we decided to book with Hotel Vienna as recommended to us by a friend. The hotel was full but they recommended their hostal 'Austria'.
After getting completley mislead by their useless on-line map telling us how to get there by car, the guy at the hostal then refused to come and help me get the car into the pedestrianised area in order to park the car. Only when my partner inisted that he come the short walk down the road did he oblige, but not without throwing the garage key on the floor in a rage first. He then told me the street number of the garage. In true Spanish fashion, no numbers appear above the buildings so I ended up blocking a single lane street which is contolled by traffic lights. At this point my irate mother-in-law goes to Hotel Vienna to get the Austrian female owner who also refuses to help us. Eventually after some stern words she arrives to show us the garage door which you couldn't possibly have guessed was theirs!
At last a good point! The young female receptionist of either Austrian or German origin is lovely. She goes out of her way to be nice and takes the sting out of what has just happened. We ask if it is possible to have the room for an additional night as we decided to have a good look round Granada. She says she can't book us in, but there's plenty of room and the guy who works the day shift will take the booking. We get up early and the new receptionist is there along with the Austrian owner. When we attempt to book the room for another night she intervenes and says 'no, no, no' and asks us to leave by 11.00 am. This is the treatment we receive without causing any problem for them, but with major inconvenience from the outset for us. The room also reeked of stale tobacco and dampness. There was also some strange dealings going on in the street right below our window. The bathroom was completley covered in mirrors like a dodgy porn-suite.
It was a blessing being asked to leave that dump. We checked in to a Spanish run hostal up the road named Sierpes, run by a family. We got a split-level triple room cheaper than the Austria, which overlooked a private garden and it also had a T.V. The staff were friendly and breakfast was reasonably priced too.

Hostal AUstria is o.k. The decor is a little mished-mashed compared to better hotels for the same price.
It looks a little crudy, but really it's clean. However, the staff are by far the friendliest I have seen during my stay in Spain. And they are extremely accomodating.
The other benefit, is that it is centrally located and only about 20 minutes walking distance from the Alhambra.
However, it is very noisy at night.