I have mixed feelings about Rivendell bikes, but a lot of respect for Grant Petersen -- how many other bike company owners would review, let alone recommend, some other company's bike?
I test rode a San Jose a few weeks ago. They are fun, solid bikes. The only things I didn't like were the pedals, seat, bar tape and brake levers.
Re: lugs, my understanding is that they don't just look pretty, they also have two big practical advantages: they strengthen the joints and make tube repairs easier.
On the other hand, I wonder if Rivendell would ever consider making a non-lugged budget bike similar to the SJ. A lot of people dig Rivendell's design philosphy but could never afford a $1400 bike.