Don't forget that while the shuttles were flying, NASA systematically sabotaged *every* private attempt at SSTO, including the proven-capable DC-X project as well as the Rotary Rocket (which was slightly less realistic, but they were moving to dump the rotor and use a DC-X configuration - which got NASA to shut them down).
Basically, NASA removed all competition to the shuttle on spurious grounds (FUD), and now that the shuttle has proven to everyone that it's been a creaky project for a while, they want to go back two generations and go back to capsules on top of non-reusable rockets, or worse yet, another spacecraft that "lands like an airplane." Hey, NASA, here's a hint - SPACECRAFT DO NOT NEED WINGS.
Read this about the DC-X and how NASA sabotaged cheap access to space: http://media.armadilloaerospace.com/DCX/
Low bandwidth MOV of the DC-X rocket taking off, hovering, flying through the air sideways, and landing *vertically*: http://media.armadilloaerospace.com/DCX/DeltaClipper.mov
High bandwidth version of same: http://media.armadilloaerospace.com/DCX/DeltaClipperNoAudio.mov
The SSTO is a neat concept. but I'd stop well short of calling it "proven-capable." It could take off and land. That's far short of being capable of lifting a usable payload to orbit cost-effectively (though the shuttle has been far less cost-effective than originally believed) and returning a crew safely to Earth.
DC-X proved that it could handle the easiest parts of the mission. That's like me proving that my car can back out of the driveway, drive around the block and pull back in. It's a far cry from proving that I can drive from Atlanta to LA on a tank of gas.
I'm no expert, but my general sense is that a retrorocket landing probably isn't practical, however cool it looks. You have to burn a lot of fuel to land that way, and you have to carry all that fuel into orbit. Hauling that fuel means adding launch weight, which means burning more fuel and oxidizer. Every pound of fuel you need to carry is a pound less of useful payload.
The DC-X's ability to hover is also way cool, but it's of no value if the goal is to get to orbit and back, or to get from orbital to interplanetary space. You just can't beat the efficiency of a glide landing, so I'd expect that to be the re-entry plan for the foreseeable future.
But you do have a good point in that NASA adopted the One True Plan and disregarded any alternative. NASA -- or the government working through another agency -- should be looking at and seeding innovative approaches to space.
We should treat space exploration like a venture capitalist treats any new technology -- offer a little funding to a lot of folks, then more funding to the ideas that pan out. Start with a hundred ideas, winnow them down to ten, then choose the one that has best proven itself. The odds on any one approach are long, but the potential payoff is enormous.