I love my local yarn stores, I really do. I love Stitch Your Art Out because they're so friendly and they have great taste (i.e., very similar to mine) in yarn--if a somewhat limited selection because they are in a very small space and they are also half a quilt shop. Their prices are a little higher, but not so much that you feel taken advantage of--it's just that they have to pay rent, you know. The customer service is worth it and they'll order you something they don't have in. About the only thing they really can't help you with is cobweb lace yarn. Their needle selection is limited, but they'll usually have at least one of what you need (as long as its not too obscure).
For that reason I also love Knitter's Underground. While I have had one truly unpleasant customer service experience, it was at the hands of the owner, and not her employees. (And their website is circa 1990.) They have a huge selection of yarn and their prices are superior even to most online prices (they clearly own their building). They have cobweb lace yarn in a wide variety of colors and gobs and gobs of needles--even the obscure things. They have everything, really.
But that doesn't keep me from occasionally poking around online. I follow the links other bloggers post and save them and once in a very great while, post an order for something I think Stitch won't have and don't feel like driving out to Centre Hall for (yes, I've become the kind of person who thinks a 20 minute drive is out of the way). I discovered Sarah's Yarns when I wanted to use JaggerSpun Zephyr DK, but didn't want to pay KU's retail price for enough of it to knit Chris a sweater (52 inches around with ease--actually, that was my measurement the night before I delivered the twins!). She sells JaggerSpun by the cone, charges very reasonably for shipping, and I swear if you place an order at 1am, she must get up and go package it and have at the post office when it opens. It arrives 2-3 days after I order it, every time. The price discount is so signficant, and she'll sell you part of a cone at a very reasonable cost, too. (Don't you think a scarf knit from two skeins of this would look smashing on me? I might need that yarn.)
My most recent discovery was through the Yarn Harlot's blog. She posted a link to The Loopy Ewe, and I think Claudia's Handpainted Yarns. So I followed the link to go peek and saw the colorway Carousel, which appealed to me in many ways. I bought two skeins and one is becoming a sock. It is sooooo soft and sooooo easy to knit up, that I went back and ordered two more skeins in colorway Turquoise Jeans. It is springy and soft and . . . I want more of it. Up until this point, the only other sock yarn I've used that makes me feel so smitten is Barefoot Mountain Colors. They even knit up for me at about the same gauge. Sheri at The Loopy Ewe takes care in her packaging and writes charming notes about your purchase on the back of the receipt. Her shipping is also extremely fast. (Colorway Oops makes me laugh--plus, it's pretty. I want 2 of those. Oh, and sunrise? I'll totally take two of those. I'm just throwing out ideas for whomever might not have shopped for me yet ;) )
So there you have it.