I've been seeing a lot of discussion online about itemization vs deduction and I was wondering how this differs between someone filing as a resident (1040) and a non-resident (1040NR).

As I understand it from reading the IRS booklets, for a resident, you can choose only EITHER to itemize OR the standard deduction of $5350, not both (line 40 in 1040). However, for non-resident, you can claim itemized deductions in addition to an exemption deduction of $3400 (line 37&39 in 1040NR). So under certain circumstances, conditions would be more favorable to file as a non-resident. Does this sound right?

Hey, if you qualify as a non resident, and your liability decreases under that status, go for it.

Makes sense to me.

Every one, residents or nonresidents, get exemption deduction of $3,400 (for 2007).

Residents get standard deduction, or they can choose to go for itemized deduction.

Non residents don't get standard deduction. They can take itemized deduction. F1 and J1 visa holders also get extra deduction as per the tax treaty.
For more on nonresident filing: Your U.S. Tax Return: U.S. Tax Filing Requirements for Non-Residents (http://taxipay.blogspot.com/2008/03/us-tax-filing-requirements-for-non.html)