Right on, Tak. Pretty good points, except that destroying homes can actually RAISE morale (maybe only temporarily.) Look how it worked on the Brits when Germany was carpet-bombing London. Until it's completely levelled, the attitude is "we need to stop it at ANY cost."
Of course, that doesn't apply to nukes. Nukes run both ways, though. The biggest thing that stops a first strike is the fear of a retaliatory strike. If you don't strike the enemy, he's scared of getting hit with retaliation if he hits you first. MAD worked.
Now, if you DO nuke your enemy, he's gonna have nothing left to lose. "Eh, I'm screwed, might as well do the same back."
What's scariest is nations or groups getting hold of nukes who don't CARE if they get hit with a retaliatory strike (I can think of a couple... Hmm, one of them starved a large portion of his nation's population to death....) That makes MAD not work, and when MAD doesn't work, someone (lots of someones) gets fried.