Rand Simberg favors a more aggressive approach, given the imminent phase out of the remaining orbiters. I can understand NASA's caution, though. The next shuttle lost will likely be carrying major station elements, and given the current 2010 shutdown date, it would be impossible to recover from another multiyear standdown. I understand that they are already ending some STS procurement programs. Loss of another shuttle ends the program.
Cost is not a huge argument against continuing Hubble missions. Breaking down the major costs:
The shuttle itself: One or two shuttle flight (at $70-$100 million a flight - as NASA are already flying the shuttle for ISS we can effectively write off the high fixed costs of the shuttle ($2 to 3 billion/year)).
New instruments - Some are already built and paid for (e. g. WFPC3 and COS). Others might be competitively bid for as individual Discovery-class missions.
STScl - The Hubble control center will be running the Webb Space Telescope, so NASA can not save money by shutting that down.
Bruce McCandless (of iconic astronaut photograph fame) proposed in 2003 that SM-5, the sixth Hubble service mission which was then up in the air due to the Columbia accident, should use a standard shuttle-based service mission to practice precision telerobotic techniques - with astronauts onsite to lower risk to Hubble. This would directly bear on the much hyped human-robotic aspect of the new "Vision for Space Exploration" .
So the costs of continuing shuttle missions to Hubble are on the order of $100-$200 million over the next decade. No replacement high resolution UV observatories have even been proposed that I know of. Webb (even if it deploys successfully) fails to duplicate most of Hubble's capacities. I suspect that aesthetically images from Hubble will remain superior to those from the Webb (due to resolution and wavelengths used by the different telescopes).
So there is a good case for continuing service missions. I suspect it would require a new Administrator for the policy to change. Is this yet another reason to fire Don Rumsfeld - to give the current Administrator, Sean O'Keefe, a promotion?