If I don't purchase the optional baggage insurance through AIFS for $60, will I have any coverage?

No, only while traveling with the airline will you have coverage.  

How many pesetas should I have upon arrival in Madrid?  Where can I buy pesetas in the US?

Bring about $50-100 in pesetas.  Purchase them from your bank, or the Bank of America.  They can be purchased at international airports as well.

Check the exchange rates.

Luggage Storage

Here is a message from Clara, AIFS in Salamanca:

I believe Madrid airport has lockers, although I imagine it would work out quite expensive to rent them. What our students have done in the past is either give a bag to a student to take back who’s not traveling after the program (they pay them the cost for the additional bag), or we have been lucky before and the hotel we use in Madrid have kept students luggage, for free! I will try and find out for you the exact costs of the lockers at Madrid airport. When talking to students, if you could please stress to them that they should bring as little as possible along, luggage wise. Many students always bring far too much, when it’s really not needed and they end up wishing they’d left half of the things at home!