Yes, derailleurs are a PAIN in the a**!

As it turns out the problem wasn't so much with the cable tension.

I finally gave up, ready to toss the bike out the window and dust off my fixie, and decided to take it in to one of the ba-zillion bike shops around town. At first the mechanic thought it was a case of an old/worn/bent derailleur. He was getting ready to replace it when he looked closely at the chain. Apparently, the person I bought the bike from (someone on craigslist) had put a 10-speed chain on the bike. The cassette has only 8-speeds. Problem solved.