The minefield that is Keyword Research ?

At the risk of making things even more complicated, let me add this:
Looking at the number of competing pages is not a great final indicator of whether you should go for a keyword or not. You need to actually look at the top listed results listed for a keyword and ask yourself if you can compete against these sites.

As for long- vs. short-tail: If this is a long-term thing, I recommend going for at least one short-tail keyword. Might take you months to get a good rank, but it's worth it in the long run.
You can still target several long-tail keywords with other blog-posts and articles etc. and if the long-tails contain the short-tail KW, the links you build for the ones will also slightly benefit ranking for the others.

You can either use a free tool like the Google Keyword Tool, or look at other more powerful pay options (keyword elite, word tracker, etc.). Start with brainstorming ideas of your own, and then use those tools to find related terms. Look for terms that are general enough to get lots of traffic, but specific enough that searchers will be interested in what you have to say. From VERY basic searching, I think "frequent flyer miles" is a decent place to start.

I prefer to target one high-level keyword, and use the long-tail as a bridge to get there. In other words, you might want to eventually rank for "frequent flyer miles"... so you do keyword-writing for all the long-tail phrases that include those words.

There isn't a simple mathematical formula to weight these factors. However, I will say that you need to consider "commercial intent". In other words, a phrase might have a lot of searches, but ideally it should be something that suggests commercial intent on the part of the searcher.

I'm sure you could easily target the bulk of the keywords over time, just start with ones that get decent traffic and have decent commercial intent.

I would suggest focusing the homepage SEO on your primary keyword (frequent flyer miles), and then write articles that cover groups of related phrases. For example, if five phrases have multiple words in common (and can be blended into one topic), they can probably be merged into one article. That said, keep in mind that you are writing this content for actual readers... not just to optimize for the search engines. Make sure that if someone lands on the page, it offers them real value (in this case, information they seek).

This is 100% dependent on the amount of time and effort you put into on-site SEO and more importantly, off-site optimization.

I really don't want to shamelessly plug my site, but I do have tutorials that specifically cover these topics. I would recommend you check out the lessons on: keyword research, keyword writing, magnetic content, on-site SEO, and off-site SEO (all free... I'm not selling anything). I hope this helps.

Thanks Rick, I've read through your keyword guides and they are quite helpful.

I don't know whether this is a fundamental flaw in my overall strategy. But I was hoping to lure in traffic by blogging about saving money on flights and maximizing comfort THEN sell them my frequent flyer guide. Are you saying I should focus my content on frequent flyer content only?

In my case, every time I create another site, I use Google Adwords Keyword Tool and I pay attention to the estimate Avg CPC; Local Search Volume and Global Monthly Search Volume. I take the words with higher search volume and use them as tags, and also try to sprinkle them into my blogs.

I have just started using MNF. It is an amazing program. Cuts all of the brainwork out. I have used Keyword Analyzer for years and Brad's Keyword Elite (which is also a very good program), but for identifying micro niches quickly, it is the best software I have ever used.

That's funny. I used to have a CB product that was about frequent flyer miles. I just haven't done anything with it in years. Good niche!