I'm in the same boat, applying to graduate schools right now for a M.S. in Artificial Intelligence, specifically machine learning and knowledge representation. Just submitted my application for the University of Toronto today. All others in the US I will be submitting around December 15.

I appreciate the insightful and helpful comments, and I agree with m0th87's reasoning for taking the Master's route. Personally, I decided to apply to the Master's because I want to work in the industry for 3-5 years before returning to school to complete a Ph.D. For some reason I feel like applying for a Ph.D to then take the consolation Master's is (in some way) cheating the system, and I can't bring myself to do that. Any thoughts?