Sure, when you address an envelope (how often do you actually do that in 2010?), use the USPS code, trying to remember if AK is Alaska or Arkansas and which of the Mi. states is MI. And when faced with a little box on a form, your only choice is to squeeze in those two capital letters.
But, please, when writing anything else—an engagement announcement, letter to the editor or the annual Christmas letter—either spell out the state or use the old-fashioned abbreviations that we all knew before the government swept them away for the sake of their sorting machines.
This is not just the Word Crank being crotchety, although that's enough for me. Associated Press style still calls for the old-school abbreviations. There are a couple of reasons for it—clarity, recognizing that most people are hazy about faraway states and the old abbreviations give more of a hint to which state they belong, and aesthetics. When looking at a block of type, as on a newspaper or magazine page, it is jarring and ugly to see ungrammatical capitals studded throughout.
So my plea is for writers to assert their rebel roots. Don't bow to government fiat. Rediscover proper abbreviations. For those who have forgotten them, and young folks who may have never seen them, below are the AP's state abbreviations. Note that some states, those with short names, are not listed. They should be spelled out.
Ala., Ariz., Ark., Calif., Colo., Conn., Del., Fla., Ga., Ill., Ind., Kan., Ky., La., Md., Mass., Mich., Minn., Miss., Mo., Mont., Neb., Nev., N.H., N.J., N.M., N.Y., N.C., N.D., Okla., Ore., Pa., R.I., S.C., S.D., Tenn., Vt., Va., Wash., W.Va., Wis., Wyo.