Metro Phoenix is a tough place for Mexican restaurants.
The level of Mexican food in AZ is very high and because of that, I find that my expectations are raised of any restaurant.
Palacio is primarily designed for groups of 4 or less. Lots of booths and not that many tables that can handle more.
My family of 6 showed up and waited for nearly an hour, granted on a busy night. Lots of booths were available, but alas, we simply would not fit.
Once seated, the service was prompt and very good.
The chips and salsa had decent chips, but really good mild salsa and very good bean dip.
The chimichangas ordered had some of the best deep fried flaky crust I've had. The seafood filling was a lot of imitation crab, sort of a turn off. The carne asada was ok, I've had tastier before.
My wife's chile relleno was a complete disappointment. The breading was way to thick and overwhelming and made the poor chile inside look sad.
I have always thought that restaurants should resist the temptation to fill their menu with items they think they should have rather than items that they do really well. Palacio's chile relleno is a good example of that.
In the end, this is ok Mexican food in an area that is rife with great restaurants.