I am currently longing for a holiday in Madeira. We went there last February and enjoyed beautiful sunshine and temperatures in the early to mid twenties while it was still very much winter back in London. Due to its lack of sandy beaches, Madeira is often overlooked as a short haul sun destination. However, it has so much else to offer:...very dramatic mountains and cliffs, beautiful eucalyptus forests, amazing exotic fruits and, most importantly, from late February to late October great weather.
The most famous place to stay is the Reid's Palace (http://www.reidspalace.com/web/omad/reids_palace.jsp). However, a lot younger and fresher is the Choupana Hills Hotel (http://www.choupanahills.com/en/en_index.html) with its beautiful pool and Asian style bungalows.
For dinner, however, the Villa Cipriani at the Reid's Palace is great - amazing Italian food in a beautiful setting overlooking the bay of Funchal. For the traditional meat kebabs, Arsenio's on the Rua de la Santa Maria in Funchal is very nice. They have live fado music (http://www.youtube.com/watch?v=4IDGhVw7_us) which continues after dinner at the wine bar Pao e Vino around the corner from the restaurant.