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I'm pretty much with Neil on this. I think a suburban rail would make more overall sense in that it would visibly extend the transit network and bring new riders into the system. The visibility and expanded ridership would make expansion of the system much easier than a streetcar system which would be harder for people outside of the metro core to see.
Frankly I'd love to see rail from downtown to Easton and Creekside as well as a line up north to Polaris. Transit oriented development could generate needed tax revenues to help generate income for further improvements. What would generate more taxes? An empty Creekside or Continent or ones that are packed every weekend?
As for saying you would need "hundreds of rail lines" to serve outlying areas or that you would need to drive? I find these statements disingenious at best. A good light rail or BRT system could integrate and extend bus lines. Circulator buses could extend stations into transit centers for a neighborhood. And even if people do decide that driving to a station is preferable, I think that's far better than driving downtown or across town.
ETA: I should point out that John has made the most coherent argument for streetcars that I've seen so far. On the other hand I think that an express/local scheme similar to what John mentioned could be set up for the higher capacity buses in a way that provides some of the benefit of a streetcar. At the very least it's worth exploring.
It's also worth noting that Portland MAX style LR cars could meet provide that kind of service to high street on a north line before splitting off and becoming a light rail line.
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