Having grown up in Silicon Valley, I can honestly say that what people consider to be Silicon Valley today was not anything close to what it was 20 years ago. So I don't take it so seriously anymore.
Since San Jose went from the gateway to Silicon Valley to the Heart of Silicon Valley, I feel like San Francisco, which is actually part of the Peninsula, can be part of SV.
I've only been here six years, and truth be told I avoid SF at all costs, but all I have to do is look at the job listings. SF listings are full of every Social Web Media Infinity-point-Fad known to man.
South Bay -- Platforms, infrastructure, embedded systems, established technologies, emphasis on availability and reliability. This is what the San Francisco startups rely on to make sure their new web startup doesn't fall over at the first sign of traffic.
One might see this as the traditional Silicon Valley maturing and even stagnating in comparison to San Francisco's young, hip, fast-moving culture, but I don't think it's reasonable to treat them as a unified entity.
I agree there is this trend (the hip Social Media whatever startups are loss prominent in SF), but you do see some lower-level silicon valley startups in SF. Salesforce, Riverbed Technology, BitTorrent, Heroku, Dropbox, Square - just to name a few known ones. Admittedly there is few electronics stuff here (outside of biotech).
That said the Bay Area definitely has an OSI model going, with the lowest levels in the SE extreme (santa clara, san jose), higher levels NW (Mt View, Palo Alto), and software applications all the way to SF.
@thomas: Salesforce is actually bigger than Facebook by heads and HQ'd in a few skyscrapers in SF.
(soon to move to a dedicated office complex in Mission Bay.)
Well I think it has to do with how difficult it is to find affordable office real estate for businesses that outgrow their space. I can't imagine a company as big as Google or Facebook having their HQ in SF without having to build a giant skyscraper in the Financial District.
Since San Jose went from the gateway to Silicon Valley to the Heart of Silicon Valley, I feel like San Francisco, which is actually part of the Peninsula, can be part of SV.