TJ makes a good point about maintenance costs. Often overlooked maintenance items on a m/c are:
chain and sprockets
tires
They wear out pretty fast if you buy the cheap versions, and the long lasting types are fairly expensive.
That said, I have a little dual purpose Honda XR250L that I picked up for $1300.
It gets about 60mpg and is fine for running errands and short trips. I wouldn't want to ride it 35 miles each way to work for example.
One thing I do like about it is its versatility. It can go just about anywhere with an experienced rider aboard, and can carry a passenger. Detiorating roads don't pose much of a problem for it.
I see motorcycles as having a time-window of usefulness at some point during our slide down. Ultimately they'll be useless just like every other fossil fuel burning vehicle. But there will be a time when motorcycles will be the ideal IMO.
The questions are when and for how long.
In the meantime its fun to ride for recreation and it pretty low cost to operate. And air-cooled Honda singles are legendary for their reliability.
To the OP, in today's driving conditions, I wouldn't go anything below a 250cc. In India the Hero-Honda 125cc is one of the best selling street bikes. You wouldn;t catch me driving a 125 on any road where there are a lot of cars, as the top speed would be somewhat limited, and cruising at 55 would probably be too close to its limits. Of course larger displacement bikes wouldn't have that problem.
On converting off-road bikes for street: its not that expensive, for example Baja Designs sells conversion kits for about $500 for most types of off road machines. The caveat is that some states make it damn near impossible to get a conversion registered, while in others it is quite simple. Colorado comes to mind as a state where the process is simple. Most states in the nanny-state Northeast make it exceedingly difficult, or so I have read.
A good forum for off-road and dual purpose bikes:
www.thumpertalk.com
If you're interested in fourstroke bikes and dual sport conversions, there are lots of knowledgeable folks there that are pretty helpful.