The tyranist's thoughts
This one walks a very fine line, similar to the one walked by The Sixth Sense. It is part ghost story, part war drama. Interestingly, horror is the background of the film. It's part of the texture rather than the picture itself. There aren't many directors willing to do that.
In the midst of a Spanish civil war (I'm not the European history buff I'd like to be so don't ask me when or how), a boy is orphaned and dropped in the middle of nowhere at a run-down, dirt poor orphanage. The boy meets the local ghost immediately upon arrival and slowly begins to find out what is happening there and why the ghost keeps insisting that "many of you will die."
The ghost in this one is super-creepy and there were many parts that had me squirming with anticipation. The main story is well told and the acting is nice. The dialogue is very good in places and I'm glad that I wasn't forced to see a dubbed version. The gore seemed a little tame for del Toro, but when the blood flowed it was effective. I especially liked the effect of the ghost walking around still spouting blood from his head as if he were under water. Very cool.
This one is completely worth seeing unless you have something against reading sub-titles. The story is very good and the horror edgy even if it supports the story more than drives it.

Rish's Reviews
I actually saw this one a while back, but was too lazy to ever review it. Tyranist, being of a different sort, saw the film months later, but still beat me to the punch.
El Espinazo del Diablo is an art film, much less Horror than it might have been. The director seemed to restrain himself along the way, pulling back from the horrific elements and focusing more on the dramatic. You'd never believe this was the guy who did Blade II.
Beginning with the phrase "?Que es un fantasma?("What is a ghost?")" and ending with it, there was a lyrical poetry of the film that only foreign films seem to manage. Along the same lines, the title is more atmospheric than legitimately related to the story.
The orphanage location is a grimy, oppressive place, like you'd see in fairy tales sometimes, complete with a surreal atmosphere and the iconic unexploded bomb in the center of the square. It's a sad situation in wartime Spain, where the boys catch slugs for entertainment (actually, that sounds kind of fun).
The characterization is nicely done: Carlos is the new boy, the main character, whose innocence and naivitee help us understand the unfamiliar locale. Jaime is the tough head boy at the orphanage who knows about the death of Santi (the ghost that haunts the grounds). Jacinto is the adult handyman and would-be thief, seemingly an idol for the boys, but in actuality, quite a cruel character.
The film has really terrifying moments involving the ghost, but early on. The ghost has an amazing, unique look--a combination of two or three images, along with a bleeding underwater effect. But a living, breathing person turns out to be much more threatening than the ghost, which fits with the film's tagline.