Where should startup founders live in the Bay Area?

My two-person education startup is looking to move to San Francisco for personal and business reasons. What are the possibilities and tradeoffs of where to live/work? Our general (somewhat conflicting) considerations are:

• Cheap as possible (less than $850/person)
• Access to weekly tech and social events
• Don't want to have to have a car
• Will likely be aggressively pursuing angel funding
• Don't care much about housing quality or "safety"

For locations outside of San Francisco e.g. Oakland, Daly City, South SF, and Richmond, is it easy enough to regularly get into the city? Would a startup feel isolated there? How about in the outer parts of SF like Sunset or Lower Mission? Am I overstating the importance of being connected to downtown?

If anyone got a temporary place for a month first to feel it out, how did you go about finding a place and where did you live?

This is an open-ended question, and I'm most interested in hearing about your experiences: what was frustrating, what worked well.

From the East Bay, SF is very BART-accessible, but the hotbed of angel-investor and VC activity (Mountain View and Palo Alto) is NOT. It's actually a real pain to come down from Berkeley / Richmond / Oakland to Palo Alto. So count out East Bay.

On the peninsula side, San Mateo or Redwood City are actually great options. In-between SF and Palo Alto, cal-train accessible, and not very expensive.

A number of companies are looking at San Mateo now.
You'd be in good company there and it's a decent compromise between SF and all the action in Palo Alto and southward. This is important if you plan not to have a car. Traveling between SF and San Jose takes about an hour by Caltrain, so settling in between gives you a convenient position to meet with investors, go to startup mixers, and recruit university talent.

Daly City & South SF are pretty good and not very far away from downtown. I'd opt for those over Oakland (which may be significantly cheaper) because crime there is higher than average.

Another -1 for the East Bay: if you use public transit, the BART's last train (to most area destinations in the East Bay) is freakishly early—7 pm! Forget about staying out late for coding sessions (or even drinks).

Living south of San Francisco also has it's problems. See Caltrain's new, startup-unfriendly schedule (last train at ~8 pm): http://bit.ly/e8WE4r (Feb 2011).