Madrones are extremely drought tolerant, and generally don't appreciate summer water, so you are wise to be concerned about sprinklers. Infrequent, shallow water can promote root rots. They may appreciate some water during their early establishment phase, and infrequent deep watering during an excessively dry summer.   There is no intrinsic reason not to plant it several feet above the lakeshore, as long as the lake level is stable. If it is likely to rise significantly, to the point where it might reach the tree, then it is probably not a good idea. Having the lake's water table within rich will allow it's roots to seek out whatever moisture they need, which is good.
I'm not sure just how close that large conifer is to your proposed planting site, but it would be best to make sure it doesn't shade the madrone. They hate being shaded.

I've attached a publication on Madrones - it mostly deals with problems they face, but has some care information