Boy, that is the question of the time. Buy a home because you want your own place, you want the mortgage deduction, and you would enjoy the area, the lifestyle, and the commute is one you can deal with. Don't buy because you think you can use your home as a piggy bank. It is one asset among many with which you should diversify your financial investments. So whether they drop a bit more, or not, if you are planning on staying longer than 3-5 years, you should not be that concerned about potential price changes.
Many homes are selling for between 35% and 50% of what they sold for at the peak, and in fact, most. I have heard positive and negative things about those homes. Some people in the Oakland/Piedmont areas don't like them because they are "cookie cutter" homes, and lack the custom feel of many homes in the hills. But the other half of the population like them because they are newer, many have fantastic views, more modern floorplans, and of course, are really conveniently located.