I've got a 550 ft. studio in River North for $1100, everything included except Internet (landlord is cousin, so I pay about $300 less than average for my building). I commute out to Deerfield from Union, and it's 50 minutes one-way; total 1 hour 40 minutes counting the shuttle from the Metra station and the walk to Union. Work from home 2 weeks, which is a huge help. It's pricey, and a long commute, but we're really happy here and can't imagine living far away from the Loop.
It'll probably come down to what makes you happy, and how much it's worth to you. For us, quality of living means being steps away from the riverwalk, the El, great restaurants, a farmers market, and Millennium/Grant Park. We pay more for that quality of life, so we sacrifice in other areas--we almost never travel, and we rarely buy consumer goods.
Alternately, if you're okay with being a little farther away to pay less, I second the Bucktown/Wicker Park area. That seems the most likely option for us if we decide we need more space.
As to the subdividing, I have no idea whether that would work. It would come down probably to your landlord situation and lease. Subletting is prohibited by our condo association, for instance.