I like this article that Sue Macallister had in today's SJ Mercury News. She points out that high demand areas as seeing no price declines or actually going up (as Los Altos has) and that the drops everyone keeps hearing about come from other areas.
The article fails to be specific about the areas that have seen the greatest declines. They are where first-time homebuyers were getting into homes they couldn't really afford (no matter how low the price seemed). Those areas typically have prices in the $500-700K range, have fair school districts and suffer other issues.
Los Altos is a prime location. Inventory has fallen in recent weeks and continues to stay relatively low. Well priced homes sell fast and go over their asking prices. A good example is 295 Vernal Court in North Los Altos. It sold after one weekend on the market and for nearly $100K over the asking price.