YC sings the praises of San Fransisco, and they're right about the culture and the startup scene there. But things like this, and the cost of living overall, make me hesitate to start something out there.
<thumbsup city="Austin"/>
<thumbsup city="Seattle"/>
EDIT: fwiw, I'm an SF native, and this same trick was done to me in 2005.
See also pg's "Cities and Ambition" http://paulgraham.com/cities.html. People move to SV to do startups because everyone else moves to SV to do startups. The field of economic geography studies this phenomenon.