No doubt about it, people want to be closer to shopping, dining, entertainment, nightlife--and work. The condo conversion of 500 N has been several years in the making, and it's still the only real residential highrise ownership opportunity in Downtown Sacramento (yes, I know a couple units at Capitol Towers are privately owned). But, as Beth mentioned, there's no way around the low ceilings and slightly cramped feel.
Some other projects to consider in the Downtown & Midtown area are the L Street Lofts (pricey, but a top-notch location), 1600 H, and what I think is emerging to be a real contender in Midtown: the Sutter Brownstones. The Brownstones (www.sutterbrownstones.com) just hit the market and are priced from $370K to $590K for 1100+ to nearly 2000 square feet--very affordable compared to a lot of other options. A word of warning: there are only 28 units at the Sutter Brownstones, and though they've only been available a few days, already 5 units are in contract.
Who says the market is slow? ;-)