Chaz: speaking as a native San Franciscan, it seems to me that your friend is more or less right ... the fact that the dot-com implosion has leveled things out just a bit, pricewise (SF was never cheap) hasn't brought many of the departed back, nor have recent efforts by some of the dot-com nouveau riche to restore things by, e.g., opening huge "affordable" new practice spaces and recording studios.
I think the Bay Area scene also suffers, to a lesser extent, from the same problems I see in the DC/Baltimore area (and, I guess, most other large metro areas): creeping cover-band-itis and the Clear-Channelization of many of the larger venues. There's still a lot going on any given week, though ... we *are* still in the top five cities that enjoy live music per capita ... just a bit less on the more underground levels.
ps: "vansmack," are you the same person who used to post punk bootlegs on sharingthegroove.org under that name? if so, thank you for that.
