A yard should be a reflection of a home's environment. If you live in a desert, the surroundings of your house should match that. You can be very decorative without having to use a substantial amount of water.

Then again, I'm from Upstate NY, where nobody waters their lawn because the region is soaked. But that doesn't mean grass is sacrosanct. We removed the entire back yard of grass between our house and the lake because it made more sense to have a stone patio. We also replaced our front yards with gravel driveways because we rent the house out fairly often and have far more bedrooms than parking spaces.

I think in general people should look to more than a flat pane of grass as the answer to the space around their home.