This has been an age old question that I and many of my colleagues have debated endlessly. It's also one of my pet topics, hence my interest in contributing to this dicussion.
To give you a bit of background on myself I have worked as a race and data engineer in formulaes as diverse as F3000, F3, A1GP, V8 Supercars, Sportscar, FIA GT3 to name a few. Currently I run ChassisSim Technologies that produces transient race car simulation software used in fields as diverse as GP2, F3, V8 Supercars, the IRL, ALMS and many other categories. I also write for Racecar Engineering.
Tim I thought you gave a very good a detailed account of what's involved in the setup compromises.
However let me add the perspective of someone who has been there and done that. The Bottomline with soft vs stiff always boils down to the following two compromises.
*What do the tyres want. There are some tyres that must have load to bring them up to temperature. This requires a stiff setup. Conversely there are other tyres that will be positively cooked in no time.
*How much aero are you running and where you want the ride height envelope. The more downforce you are running the more of a deal breaker this is. Indeed as you go to F3 and above this combined with the tyres dictate what you can and can't do.
The other thing that throws the cat amongst the pigeons is your need to give the car some compliance as you going over kerbs and to manage your transients.
Unfortunately there are no hard and fast rules. It isn't that simple. It's why people like myself have a job. Sometimes part of me wish it wasn't so though!
For those of you who want to explore this in more detail this might help,
http://www.ebook.com/ebooks/All/The_Dyn ... _Car/16469
Let me be up front it's not free, but the free preview on tyres should give you all something to think about it.
Enjoy
Danny