You're right, with DCFO, the engine drag is going to be more than it would be if the engine were idling under its own power, and definitely more than coasting in neutral. But, to really know what works better, you have to monitor how it effects MPG over time.
Now, admittedly, I haven't done a lot of scientific testing on my own, but I know some people who have. Generally, they have found that you get better overall results by using DFCO under most circumstances. The exceptions are those really long hills where you can coast for half a mile at 60 mph in neutral without losing any speed... a situation that we don't have a lot of in Florida.
For city driving, I think DFCO is a great thing. Almost anytime you're "coasting" in city driving, you're already decelerating and you don't need to extend your coast. In fact, more often than not, I use the brakes to scrub some speed at the beginning of my coast so that I can coast slower, but for a longer period of time as I approach the stop light or traffic that I'm slowing for. If you time it just right, you can use almost no fuel from the time you spot a yellow light until it turns green simply by timing your coast so that you never fully stop for the light. (only works for quick lights and usually only if there are a few cars ahead of you and not a bunch of aggressive drivers behind you) Worst case, you do have to stop, but you've stretched your DFCO coast (not using fuel) for as long as possible so that you minimize the amount of time you sit at the light idling (using fuel).
It's tricky, but believe me, you can get huge improvements in fuel economy by learning to use and abuse DFCO. Even in city traffic... in fact, it seems like *especially* in city traffic. Couple it with gentle acceleration, and you're doing an exaggerated version of the "pulse and glide" technique.
All I know is that my Yaris is supposed to get something like 32 mpg in the city, and I can easily get 40 in the city and 44+ on the highway. (all with the AC on) I'd say the two major reasons for that are very conservative acceleration and extensive use of DFCO.
Should I be surprised to see the Deacon in the Green forum? I guess we're all trying to save a little money on gas these days. And the pursuit of higher fuel economy on the street is almost as addictive as the pursuit of lower times at the track, eh?