I think the best thing to do is judge it on a case by case basis. When I’m riding on a very busy city street, I don’t take up the whole lane unless I am with a group of other cyclists doing the same. @jerv is right – this will piss off the drivers, and even though we have a right to be there, they have the power to create a very bad day for us, without any risk to themselves. You don’t want to piss off the wrong driver on the wrong day.
That being said, if the traffic is very light, and you have multiple lanes going in your direction, you’re probably fine to take a lane. Or if you’re the only vehicle in sight… but that’s a no-brainer.
I tend to stay to the right, between the closest car and the parked cars. Usually, there is plenty of room for a bike there, as long as the drivers aren’t being stupid, and no one opens the door of a parked car. Being “doored” is a definite risk, so much of my attention is on whether the parked cars are occupied, and whether a door is likely to open on me. I follow a straight line in traffic (i.e., I don’t weave in and out when there are intersections or a stretch with no parked cars), so I don’t have to keep looking over my shoulder. I have to assume that drivers are not going to run into me – otherwise, I would not be on the road at all. So less of my attention is on them between intersections. At intersections, there are no parked cars, so drivers get my full attention.
But this is a city full of cyclists, so drivers are attuned to seeing us there. In other cities, where biking is less “normal”, I have found I needed to be a lot more vigilant of the drivers, and will opt more frequently for a non-road option like a bike path, even if it’s out of my way.