I think if you live on the T4 Illawarra line with those Tangara's - the trains do feel quite crowded. I live on the T2 Airport Line, and the train services are pretty good. Naturally crowded in the mornings, yet there is always that spare middle seat available in every row of three seats. Walking is ideal, however, Sydney Trains have improved train services. My final answer: the train.
I don't even own a car anymore, so public transport is totally the way to get around. And with the Opal Card to be rolled out soon it's going to get a whole lot easier getting around. I love taking interstate friends on the ferry across to Manly too, it's a cheap scenic ride and they always love it!
Based on my experience, the trains in Sydney are much quicker than those in Melbourne, if a little more expensive per trip. Buses are also plentiful, but some are prepaid only so make sure you're organised with your tickets!
If you have the time, walking is fairly easy around the CBD. Cycling is increasingly popular, especially around the inner-city and inner-west where bike lanes have been rolled out. If you're travelling further though trains are generally reliable, and seem to stick to the timetable more often than Sydney buses.
The truth about Sydney's transport system is that in some areas Sydney has one of the best public transport systems in the world, and in others, one of the worst.
Sydney's trains can take you to many places worth visiting as tourist destinations or destinations to go out to. Travel up to the Blue Mountains by train and skip the weekend traffic coming back to Sydney. Head off to New Castle or Wollongong without any problem. There are also many great hiking destinations connected to by train. Also there are lots of jobs you can get to by train.
However living near a train station is expensive. Which makes it less convenient.
There are a number of destinations that you have to go to by bus, especially Bondi and Coogee beaches.
Manly of course is accessible by ferry which is half the fun.
Yet is you live anywhere west of Parramatta you really can't live without a car. Many suburbs, including ones closer to the city, have buses that stop early, so a late night at work and you have to take the taxi home. However while traffic congestion is a nightmare in Sydney's east, a great road system makes driving a breeze in the west. What is more they link well, with places to park near train stations, so you can take public transport into the city.
My husband & I are seniors, so we can travel around everywhere, for $2.50 all day! The Manly ferry is a lovely1/2hr trip. We can travel as far as Wollongong, Newcastle or the Blue Mountains on our senior tickets Just wonderful!.