I did extract brewing for two years before I moved to AG. If you have a good source of high-quality extract (I did), you can make very good beer with extracts and either steeped grains or very small partial mashes (which have pretty much identical equipment requirements, they're just marginally different in technique).
I decided to go AG for two reasons. One: I wanted to do things the hard way. Two: I wanted more control over the brewing process. They go hand-in-hand. If you're interested in brewing "standard" recipes, there's really no reason to do AG. Price isn't even much of a factor: you will spend so much on equipment that it will take about ten batches brewed before you start breaking even on the cheaper grain vs. extract. Long before the break-even point, you'll be eyeing an upgrade to something, trust me.
The benefit to AG is total control over your ingredients. What's in an amber extract? Depends on the producer. Do you want to brew a rye ale, or a good wheat ale? Better find a good source of rye or wheat extract. They exist, but once you start departing from the old standby IPAs and stouts, AG gives you a lot more utility. You can also gain a lot of fine-grained control over the finished product: do you want a "chewier" beer? Mash at 156 or 158.
Even then, you can do almost every recipe you can think of as a partial/mini mash with a small amount of grain and a lot of pale malt extract (look at all the 2-row in the recipes, which is very easily replaced by pale malt extract), and a mini-mash can be done with a grain bag in a 4 gal pot very easily. And if you want a more dextrinous wort, add some malto-dextrin. There is really almost no rational reason to go AG that I've found.
That's where the "hard way" comes into play also. I make bread from scratch. I make beer from scratch. I am going to learn how to make cheese this upcoming year. For whatever reason, I like doing things the hard way.
I'm also a geek. I love science. I love thinking about enzymes and testing pH and working out residual alkalinity. AG gives me a venue for my inner nerd to shine. My wife, reading this over my shoulder, says, "You have an inner nerd? I thought it was all outer."
As to the original question: I went with a 10gal cooler MLT, and am VERY happy with it. I like heavy beers, and would hate to have tried to make a wee heavy (20 pounds of grist) in a 5gal cooler. If you're putting the time and effort into making an MLT, might as well make one that maximizes utility. I figure it will be useful for mashing even if I upgrade to a 10gal system for a while (until I buy a bigger MLT for the 10g heavies). I also have an 8 gal boil kettle and the 20 psi Bayou Classic burner. I'm *very* happy with them, although I also strongly recommend a wort chiller of some sort to go with that system. 5 gallons of boiling wort takes FOREVER to chill in an icebath, and only 10 minutes to chill with my homemade chiller (50' of 3/8 copper tube attached to a pump). See what I mean about spiralling expenses?
Still, I love doing AG beer, even if I recognize that it's much more equipment heavy and not necessarily any better-tasting beer than using high-quality extract.