As I mentioned in a previous post, the Augustine Commission findings are very interesting. Apparently in the near future, they'll be giving a priority ranking to their various recommendations.
To me, the guiding principle is that NASA should focus on what it does best -- manned space exploration. Routine earth-orbital operations should be turned over to the private sector and to international partners.
If it were up to me (and it really ought to be!), here's what I would propose:
1) Extend the life of the international space station (ISS). While technically the US "owns" the ISS, the fact is that the various international partners (ESA, Canada, Russia, Japan) have made serious contributions as well. De-orbiting the station as soon as it's finished seems unfair to those partners. I would recommend extending the life of the station by five years, and then offering it to the international partners. If they see ongoing value in it, and are willing to support and maintain it, then there's no reason not to keep it in operation.
2) Extend Space Shuttle operations by one year, so instead of wrapping up at the end of 2010 they would decommission the shuttle at the end of 2011. This will help reduce the gap in US manned space capabilities.
3) Give the private sector the opportunity (and financial investment) to provide an affordable alternative to the Russian Soyuz for crew rotation to the ISS. I think it makes sense for the United States to maintain a manned spaceflight capability instead of relying on the Russians.
4) Complete work on the Orion spacecraft and the J-2X engine (both of which will be useful in almost any space exploration scenario).
5) Cancel the Ares I and Ares V launchers, and instead develop a shuttle-derived heavy lift vehicle that uses the existing designs for the external tank, solid fuel boosters, and main engines (essentially replacing the shuttle orbiter with a cargo module). The resulting vehicle would be inexpensive to develop, and would use existing launch facilities with virtually no modifications. It could work with an upper stage based on the J-2X engine, and could serve as a launcher for both manned and unmanned payloads.
6) Actively pursue alternative propulsion technologies (e.g. VASIMR).
7) Encourage international cooperation on manned space exploration.
I would also re-examine the mission profiles for returning to the moon. In particular, an outpoar at the L1 Lagrange point makes much more sense than using lunar orbit as a staging area, so I would recommend establishing a small space station and fueling depot there. Build another Node 3 (identical to the one being built for the ISS), mate it to an ATV (both of those pieces could be launched by the Ariane 5), and transport the entire assembly to L1 using a VASIMR based reusable oribtal transport vehicle. The ATV's pressurized compartment would have crew quarters, and would be shielded so it can act as a "storm cellar" in case of high levels of solar or cosmic radiation. The Node 3 module would provide life support for the crew, along with six docking ports for vehicles heading to or from the lunar surface. From L1 any point on the moon's surface is accessible, even the poles, and the continuous line-of-site and low communication delays would allow tele-operation of lunar surface vehicles and manipulators. All you'd need to add is a reusable lander that could eventually be refueled from lunar materials, and you've got the beginnings of a very affordable lunar surface base.