This is an interesting perspective. Certainly something I have thought about. Realistically, I think I can improve my GREs a bit (but not drastically, say 650 -> 700 best case), and craft a more concise SOP. However, my application is not necessarily going to be loads better: I won't have any new work or research experience to speak of by the time apps are due, and my LORs will be from the same professors. Basically, I would be broadening the net of where I apply.
Plus, considering that I'm a bit flimsy in my career goals, there is the chance that if I decide to hold out for a better program, even if I do get it, I'll discover it's not for me after squandering a year!
Maybe the best option is to go into the NU program and complete coursework for an MA; if I feel at that point that I have the ambition for a top program, I can make a more concerted effort in that direction, or if my goals are lining up with NU's program, I stick with it. My application after completing an MA would certainly be far and away better than at any time in the upcoming year.
Personally, I have to say that I understand what atlas is saying about wanting to "have a life." I know enough professors at NU who spend every waking minute doing research and getting paper's published, and while certainly impressive, I truly question if I have that type of intensity. In my life, other things have often come before "career" on my priority list -- perhaps that's why this is such a hard decision for me!
Tufnel and slacktavist, I would love to get your thoughts on this.