Since San Jose went from the gateway to Silicon Valley to the Heart of Silicon Valley, I feel like San Francisco, which is actually part of the Peninsula, can be part of SV.
South Bay -- Platforms, infrastructure, embedded systems, established technologies, emphasis on availability and reliability. This is what the San Francisco startups rely on to make sure their new web startup doesn't fall over at the first sign of traffic.
One might see this as the traditional Silicon Valley maturing and even stagnating in comparison to San Francisco's young, hip, fast-moving culture, but I don't think it's reasonable to treat them as a unified entity.
That said the Bay Area definitely has an OSI model going, with the lowest levels in the SE extreme (santa clara, san jose), higher levels NW (Mt View, Palo Alto), and software applications all the way to SF.
Many of the engineers/designers tend move around all over the bay area. Also, the investors are the same for a great portion of these companies as well.
It's just easier to refer to it as "The Valley", although it's technically not correct.
When I was first aware of Silicon Valley I literally pictured a road running through mountains, with big company X on one side, Y on the other, next door was Z... then after that I just thought of Silicon Valley as the techy nickname for SF. Then when I cared more, I grew to know more about it.