First of, my heart honestly breaks for you (and others that I see ALL the time in the same boat you're in!!)!!! For whatever it's worth, you'll be in my prayers!!
Anyway, you asked for opinions, and here's mine (otherwise, I'll ramble on at you all day!!):
Me, I'd default on the SL before the mortgage.
1) Foreclosing will more than likely not only result in your credit getting whacked, but also leave you with a hefty collection/judgment on your CRs (unless you are NOT upside down, of course). A lot of homes have lost more than 30% of their value (at least around here, they have). You probably won't be able to sell it (or the bank won't be able to, meanwhile, your credit goes further and further down the pooper). So you may very well end up owing on the foreclosure MORE than what you owe on the SL.
2) If you have a foreclosure, you won't be able to buy another home for at least 3 years. And if the current climate continues, I wouldn't be surprised if they tightened THAT regulation up.
3) Along with "1", you probably won't be able to find a rental for THAT much cheaper than your current mortgage. Around here, a mortgage on a $300K home is roughly the same as it is to rent a 3 bedroom apt (read: $1200).
No matter what you choose to pay, you're still going to have to pay for a place to live. Why not have it be the one that you can get some relief at the end of the year from Unky Sam (AKA, tax deductible interest)? That money could possibly be thrown at the SL.
4) To reiterate, you HAVE to have a place to live. You can't work, sleep, eat without a home (or without paying for one). But you can work, sleep, and eat without paying a SL.
If you default on the SL you'll end up having a $70K debt. If you default on the mortgage (and have to sell and get a rental), you'll probably end up owing the $70K SL, $XX/$XXXK on the defaulted mortgage AND still have to pay rent.
And you know what?? I don't know ANYONE with a brain who'd fault you for choosing your home over your SL. Not a single soul. Not even the jerkiest, butthol-y-ist, self-righteous creep on the face of the planet would blame you one bit. I'll bet you that even the most self-righteous-reading-only-from-a-script SM CSR would agree that your home is FAR more important. By FAR.
Have you tried talking to SM and seeing if they can help you at ALL?? Surely, they'd rather accept smaller payments than try to bleed a turnip!!
If I were you, ESPECIALLY with the current credit climate, I'd consider (if SM won't accommodate you) calling the media. Let them know that you're having to make that choice because friggin' SM won't help you. See if that helps any!
What state are in you, BTW?