It’s not the fatal stigma it used to be, according to this NYT article. Short sales (bank takes title and waives any deficiency judgement), foreclosures, mortgage modification, whatever, in this day of new morality, stiffing the lender isn’t going to ruin your life forever. The affect on your afterlife is a matter best discussed with your priest or rabbi.
In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it’s almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can’t work things out with your lender, you probably won’t be sued. You shouldn’t receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable.