I thought the real issue here was biodegradability. Since most disposable cups are not recycled, the ease with which they could be recycled matters a lot less than the fact that styrofoam is forever. Then again, in the absence of oxygen and light, I'm not sure that paper cups will ever degrade much in a modern landfill....
I've never really understood why people get worked up over landfills. Digging a giant hole and filling it with trash is a perfectly rational solution. It isn't as if we're importing mass from space and converting it to trash...we're digging up stuff from the ground, using it for awhile, and then putting it back in a slightly different form. If we ever find a use for the styrofoam in landfills, we can mine it back out again.