The most obvious problem is that deciding which research projects are worthwhile is hard. The NSF might not do a good job of it, but neither does anybody else. To make the process a political football instead is not really going to improve matters.
Less obviously, grants are a mechanism for funding science education and young scientists. My advisor was fond of making this point--- a big chunk of the money that goes to the principal investigators for a project ends up paying for students to research. A student (graduate or undergraduate) who works on a "silly" project for a couple years still learns how to do research, and his or her next project may have a huge economic benefit. Even a bad research project isn't a complete waste.
But, hey, the NSF was appropriated $6.926 billion for 2010, a whopping 0.19% of the federal budget. It's still more significant than the $0.237 billion in earmarks that they've been making so much noise about this month. I'm sure that starving the next generation of engineers and scientists is totally worth it, and a totally reasonable priority for Republican leadership. (Not to mention that there might be less climate science in the future, as a result! Talk about win-win!)
Scott Aaronson says "Cut his project"