My favourite restaurant (I go there every time) Is Los Caracoles. Can't remember the name of the street, but you could google it.
It's v. busy. The system is you go in, they prob. won't have a table immediately but we've never waited longer than 15 mins so you can have a drink at the bar or walk round the block.
You walk right through the open plan kitchen where the chefs are throwing huge lobsters, prawns etc on giant BBQs, making rissoto etc. Some of the tables are in a glassed in balcony overlooking the kitchen.
Lots of atmosphere, fantastic food.
There's also a great restaurant in Placa Real where you can get a three course lunch for E10 inc. wine.