If you don't get in I'd say you should launch anyway. Listen to your customers, hustle, and you'll succeed regardless of YC.

I'd also highly suggest moving to the bay area. Meeting the right people and getting your name out there is just SO much easier (we just did this and it's night and day, regardless of Austin being a good startup town as well).

We're in the same boat, we just applied for Winter 2011 with what we think is a great team, solid idea, and some early traction. If we don't get in we'll still be focusing on launching, traction, and listening to our customers early on.