By all means spend the night in Toledo. In addition to being able to enjoy the city in the quiet of the morning and late evening, it will also afford you the extra time I think Toledo merits. A single day really isn't enough.

The Hostal del Cardenal is a wonderful place to stay, and the attached restaurant is fantastic. If I'm not mistaken, the restaurant is owned by the same family that currently owns Casa Botín in Madrid. Botín may not be as great as it once was, when Hemingway haunted it, and it has certainly turned into a tourist destination, but it is still a fun, alluring place with good food. The food at the Hostal in Toledo, however, was one of the better meals I had during two weeks in Spain.

That said, I would not stay in the Hostal again, only because I think it's location is inconvenient for exploring inside the city. Yes it is in the wall, literally, of the old city, but when I was there, there was no way to get inside the old city without walking outside the wall and Hostal, and then choosing one of several very long, uphill hikes to one of the ancient gates that allow ingress into the historical center. It was extremely inconvenient and allowed for NO intraday, return trips to your room to rest, drop off packages, or just break up the sightseeing a little.

If you find yourself with few hotel options inside the city, I heartily recommend the Parador, situated across the Tajo river. The location is magnificent and even if you don't stay there, I'd recommend that you drive over there (by taxi if necessary) just to view the city from the terrace of the Parador. It is El Greco's view. I think the Parador also provides shuttle service for it's guests, to get to and from the historical center.

If at all possible though, I think it's best to actually stay inside the old walls, somewhere near the center. Toledo is very hilly, and the must-see sites are scattered all over the city. Getting around on foot takes time and effort. There is a lot to see, and it can take a couple of days to comfortably see it all. A central, convenient place to crash when you need it, almost becomes a necessity.

Joel, in Chicago