You're in the 33% tax bracket and have a paid-off house? No way would I be cashing out the equity, personally. The math isn't *quite* as good as you make it. For simplicity's sake, let's assume you withdraw the earnings each year:
+$7000 earnings
-$3800 interest
+$1266 taxes avoided because of interest deduction (I've never had a HELO/C--is the interest on those deductible, or just a traditional mortgage?)
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$4466 net returns
-$1117 income taxes (25% on capital gains, and this is only federal)
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3349 take-home
At your income level, that's not a whole lot of return. I'd focus first on maximizing pre-tax retirement accounts, minimizing spending, and socking away as much as possible in traditional investments.