Great topic, I live near some small streams and although I had been living out in the pacific northwest (long rods) for many years I have recently begun to re-think the stream strategy.
Last year I used an 7' 9" Sage LL 3wt with a floating double taper. It was a slower rod, but like all Sage graphites it is not lacking in the ability to create a tight loop. The old LL's were much slower than the RPL and other rods. These have been re-visited for 2001 - the LL has been replaced with the VPS light series; the RPL with VPS; RPLX with RPLXi; etc. These are not the exact same rods - for instance the old RPLX was very stiff, the RPLXi is just as fast but not stiff at all.
I like the slow action for small dry fly work in streams because there is no need to cast far, and there is a lot of finesse roll casting and a high demand for a delicate presentation. These graphite rods provide a distinct pendulum loadpoint and are cane-like (sort of).
I like the shorter lengths because I need to bushwhack thru the brush a lot out here, and longer rods make it that much harder even when I walk with the rod tip backwards.
It's true that a highstick nympher prefers a longer rod - but you can get away with a elkhair / deerhair / high floating dry fly (humpy, trude, caddis, etc) with a flourocarbon dropper and a beadhead nypmh. Fish the dry like you normally would and the fish will hit either fly. If you nymph with an indicator and practice good line management (mending and positioning, cleaning and treating, etc) the extra 12-18 inches aren't the most important factor.
Caveat: for stillwater ponds and lakes, and big west coast rivers - the short softer rods are not the ticket. Test cast the new SAGE XP 4wt for an example of a good trout rod for big waters, the 9'6" 8wt is a good steelhead and salmon rod; Spey rods in 14-15 foot lengths, etc.
<!--http--><a href="http://www2.sageflyfish.com/za/SFF?PAGE=ROD_DETAIL_POPUP&SERIES=VPS%20Light" target="_blank">Link to SAGE's VPS light page</a><!--url-->
Provided you are fishing streams with light lines and you're not going to want to do distance casting with the rod, the shorter finesse rods would be my choice.
If you want something that will give you the firepower on lakes and big rivers, I would go for something a little longer, bigger, and faster.
If I could only have one rod I would opt for an 8.5' 5wt to cover everything trouty... but it's not ideal for streams nor big water. That's tough to explain to my wife though