This is a very interesting thread, thanks for starting it! I didn't realize there were so many different strategies out there.

Here's what we do:
Airlines: we use our points almost exclusively for upper class international travel - usually buying the entire ticket on points, since the places we got tend to be expensive for even a coach ticket (Asia, Australia, etc). Like af fp, I value my points at around a penny each.

Hotels: My view is I can never have enough hotel points. Again, we use them exclusively for our 2 major vacations a year, plus 5-8 weekends away over the year - mostly starwood. For the big vacations we tend to stay in either 'resort' hotels with great pools and beaches, that would be well over $200 a night, or major city center upscale hotels in foreign language countries which we couldn't afford to stay at any other way. We really like to stay at the major properties in these foreign cities for the amazing help provided by the concierge in choosing restaurants, travel arrangements, etc, so the points are good use to stay at a hotel with good english speaking concierges, if we don't speak the native language.