I agree with you that Real Madrid has good chance. Like you said they did not do well in group stage last season but they played much better in knockout phase. Although format is different this season with extra play off round I think Real Madrid skill and experience will still help them succeed. Busy schedule might cause some problems especially with players getting tired but I am sure Real Madrid will find way to deal with it and move on to next round. Their team has long history of being strong and adjusting to challenges and I do not see why this season would be different.
The group stage is not so important, at this stage you can make mistakes but they will not be critical, the most important thing is to get to the final part, and in the knockout games we will see the Real we are used to and I admit that Real will be able to go very far again. They have two games left, Salzburg and Brest, these teams can be beaten, but this still does not guarantee Real the top 8, they may have to start from the 1/16 finals.
The win against Atalanta did bring Real Madrid better in the standings and therefore they have a further chance and can reach the top 10 if they can beat Brest and Salzburg and the other teams are not too productive, it's really hard if they want to enter the 8th position in the standings considering they only have 9 points, yes it's true, maybe they can be even more crazy in the matches in the knockout stages, I hope it's like that and their ability does not make any doubt to continue to the next round.
BTW what is sad at the moment is Man City, it looks like they will not be able to continue the league if it continues like this in addition to the defeat of Juventus really makes them even more hopeless, PSG and Stuttgart could have contributed City not to continue the journey again in the champion league this season.