Don't commute from Pleasanton to Palo Alto - traffic would be awful! You'd lose hours per day commuting. Take the hit and live in the South Bay somewhere to give yourself a reasonable commute.

The housing costs in the bay area are pretty sickening these days. I live in same general area (Mt view/Sunnyvale) that Cougarclaw used to. Since I moved here 4 years ago, rent in my neighborhood has gone up 1K - 1.5K. Most homes now are 3500-4000/month. Luckily, our rent hasn't gone up and we're pretty far below market rent, but we're feeling priced out since our landlord has hinted he's thinking of selling. I make ok money for the area, we're pretty frugal, are big savers, and I wouldn't be able to afford a house here anytime soon. We're still kicking ourselves for not buying when we moved here (house prices have practically doubled in our neighborhood in 4 yrs). The comment about schools is 100% spot on - you'll pay a lot more to rent or buy in a good elementary school district.