There's one more factor that hasn't been mentioned here: Some flights are better deals when purchased with cash, others when purchased with miles. That's why you want to have both cash and miles available. For example, I just purchased tickets for 4 family members on Delta, roundtrip Saipan to Manila in coach for 20,000 miles each. The same flights purchased with cash are about $1000 each, and the alternate flight on Continental is about $700 each. If I didn't have miles, I'd have to spend a lot of cash.

On the other hand, sometimes the price of a ticket is so low that it would be ridiculous to waste 20,000 or 25,000 miles on it. A good example would be a flight from SFO to LAX, which can be purchased for less than $200.

Miles are good for flights with long stays, for example, sending one of the kids away for a semester at school far away. Most lower priced tickets have maximum stay restrictions while with miles the tickets are good for a year. If you play the "free stopover" on international routes correctly, you can often get an extra trip by stopping at home and then "continuing" to another destination later.

I can almost always get more than 2 cents per mile on tickets I would have purchased anyway, so I use that as a basic rule of thumb. Very often you can get more value than that, but considering the limitations, time value, etc. I think this is pretty close, at least IME.