I have just posted this link in another thread but forgive me if I do it again here because I think it may be helpful in your situation:
I would also not only look at the purchase price but also on repair costs, insurance and the like. On www.edmunds.com you will find something that they call True cost to own (TCO) that breaks cost down to cents per mile driven. It is a valuable resource.
That being said I think downsizing is indeed the way to go. The smaller the car, the later model year you would be able to afford (and coincidentally the lower your repair, maintenance and insurance cost will be).