To some degree mode flexibility is real. People will take whatever is most convenient and makes the most sense. That said, there are some things which only cars can effectively accomplish - and there are some things which only transit can accomplish.
Using the grocery example, I don't even need transit. The store is a block and a half away, I just walk. But, while this is fine and dandy shopping for just myself, it wouldn't work as well if I were shopping for a whole family. Which is just as well, my area is dominated by apartments and most of the residents here aren't in the mode of currently raising kids. You move elsewhere for that.
Transit makes possible densities which highways alone cannot serve (there would be no Manhattan as we know it without the subway and commuter rail lines), and also allows you to go out drinking without concern of having a designated driver.
Back to urban freeways, though, the problem from the neighborhood perspective is the urban renewal mindset of the postwar era. Of course they destroy the neighborhoods they go through - they were designed to! We've of course since learned that haphazardly demolishing parts of slums to build freeways or housing projects tends to ensure their continued existence rather than make them go away. And indeed, removing a freeway can have a positive effect on the neighborhood it goes through, but in a way fighting for that is making the same mistake all over again: just as you can't make slums go away by demolishing tenements, you can't make traffic demand go away by demolishing freeways.
Which is fine, though, because you don't need to remove a freeway to minimalize its detrimental effect. Note, for instance, that I-71 in Cincinnati, despite running directly along the waterfront, does not isolate the city from it - because it is built such that it is easy and unintimidating to cross. I-95's problem in Philly isn't that it's there, it's that there are few opportunities to cross it.
The other thing that surface boulevard advocates miss is that the freeway is safer both for cars and for pedestrians. With intersections come cars crossing paths with each other and with people. Given the opportunity for two objects to attempt to occupy the same space at the same time, probability indicates that sometimes it will happen. I for one would rather walk under a six lane elevated freeway than cross an eight lane boulevard. The new West Side Highway in Manhattan certainly has a more pleasant atmosphere to it than a dingy elevated freeway, but anyone who calls it pedestrian friendly has clearly never attempted to cross it as one.
As for the money argument, it's valid if you're talking about ripping up a perfectly good highway, but when a highway is old and decrepit the argument can be made that simply tearing it down is cheaper than rebuilding it. Of course, then you still have to spend money reinventing the land it once stood on. And you can't just say "alternatives exist" without looking at traffic counts.