I agree on the PMI thing. For better or worse, we decided that the value of living in walking distance from 2 generations of family was worth the high cost of housing in the area. Tanks to the housing crash, we were able to pick up a small, efficient, well maintained 1949 cottage. However, even at half the price the previous owners paid, we still didn't have enough downpayment. Given that housing prices have actually climbed in my neighborhood, and our overall living expenses actually dropped from buying the house, I think we made the better choice - I guess time will tell.
Right now, we have PMI on the scales that were set pre-crash so I pay about $100 per month. Refi would put us on post-crash scales and drive it to $160 per month, but I drop our payment by $200 per month (about $180 comes from the reduced interest, $20 from adding the two years we've been paying back in.)
BUT since I have an FHA mortgage, it also restarts the PMI clock, meaning I can't drop PMI for another 5 years. Right now, I'm two years in and should I aquire the funds to pay off about $30k of my mortgage, I can drop PMI in 3 years. When you add in the tax equation of the interest being a deduction, it basically breaks even.