Busy yes, but not so busy as LHR, FRA or CDG of course. And there are far less widebody-movements. I once spend a hole afternoon on a parking lot underneath the approaching airplanes without a single B747 or A340, not to talk about a 777 landing. Expect loads of Iberia A320s, MD80s, A300s, B727s, B757s. And the ugly and boring painted Spanair and Air Europa aircraft. No 777s at all I´ve seen. There are two Aerolineas Argentinas Jumbos each day. I saw them but couldn´t photograph them.
Photo points: I´m no expert here, but possible and not to bad spots are besides the motorway (there are parallel delivery roads underneath the approach) leading out of Madrid shortly before Torrejon de Ardoz. I found no photopoints on the airport itself.
Mornings are better than afternoons. Thats for sure.