According to Dataquick the Bay Area's median sales price dropped 0.8% in Sept '06 over Sept '05. Read the general press and you miss the fact that they also break out individual areas like San Francisco so you can see how the city alone did. The news verifies what I've been seeing.... the Median sales price is up 3.5% in the city during the same time. The next closest increases were Santa Clara at 1.7% and Marin at 1.4%. Contra Costa County wasn't so lucky dropping 5.5%. So San Francisco did twice as well as the next best areas in terms of price appreciation.
The bottom line is that San Francisco is an unusual area that is world renowned, and essentially land locked. Not all neighborhoods are up in San Francisco, but when you can get views of the Golden Gate Bridge, play volley ball next to the Bay, and get great dining, culture and night life, real estate stays in demand no matter what's happening in the suburban neighborhoods outside of the city, or the rest of the country.
So if you're looking to buy or sell, it is a pretty solid market for both.