I also agree with you about reducing dependency on foreign oil but jacking up prices for gasoline hurts everyone as has been stated. Here are my reasons for trams from a developement perspective:
PROS:
1. A line that is static and dedicated makes the willingness of developers to invest in properties on and near the line. We'll see how this works in South Lake Union.
2. Trams will replace bus lines that can be used elsewhere and reduce fumes and pollutions in the city core and connected neighborhoods.
3. Running a schedule of intervals rather than time (every 10 minutes instead of 4:30, 4:45, etc.) helps people to rely on a constant source of transportation throughout the city. This system would need to run at least 18 hours per day for people to take full advantage of wanting to have dinner in Queen Anne if they live in West Seattle.
4. At grade construction would not require underground utilities to be relocated en masse unless absolutely needed. Two bridges are required for Ballard and West Seattle.
5. Streetcars will drive up the value of surrounding properties.
CONS:
1. Obviously taxes will need to be levied to pay for this system. Nothing is free but it needs to be equitable and create enough revenue to pay for the system one part at a time.
2. Because the system is at grade it will be a part of traffic rather than above or below. I suggest creating transit only lanes on busy routes to separate cars from trams (i.e 5th Ave which is a one way only going south; other streets can absorb this traffic)
3. The political will to get this done probably is not there. Because of the monorail fiasco there is a hesitancy to tax people again for a system that might or might not be built. I think once the South Lake Union streetcar is built it could be a catalyst for other lines. Making this system part of Sound Transit might help.
4. Lines might be built into the more affluent areas first. To really make a difference start lines in areas where it can be used to help those without cars get around the city to jobs, groceries, etc.
These are just my thoughts. I have ideas for where this system could start and build out but they are only my ideas. I think from a developement standpoint this would go a long way to creating great urban villages and offices within Seattle and the surrounding neighborhoods.