Real Madrid their defense is so weak because the president doesn't want to spend money on defenders, they are not exciting enough for him.
Only midfielders and attackers will do for him.
I believe Hierro was getting too old for Madrid and that's why he's not playing any more, but I could be wrong here.
As to who will win the Champions League, I think that nobody can discard Chelsea. If they can get through the group stage, their stars will find a place within the team and I think they will become stronger as the season progresses. After the group stages it becomes a little bit of a lottery as one bad match could mean that you are out of the competition.