(A belated review from 2010.) I was attending a series of conferences in Malaga in June 2010. The conference was held at the University, and many of us were staying in hotels downtown. I chose the Palacio on the basis of reviews and personal recommendations. It was a good choice. My room was comfortable and well appointed: the mattress was new and firm, there was a free mini-bar, and a good working area. Breakfast each morning was terrific, with lots of choice and excellent coffee. The location was convenient for the buses out to the University, and it was close by the pedestrianised shopping areas. As other reviewers have noted, it's central and close to a very busy street. Fortunately I was on a higher floor and most of the noise escaped me. Malaga is also very lively in the evening, and there was lots of people walking by until the wee hours.
Overall, I'd definitely stay again. The room was extremely comfortable, service was top-notch, and you can't beat the free mini-bar :-)