If you have children, or like to be out in the yard walking and working than grass may be the best choice. It will give a cushion against the soil for playtime and you can walk across it all you want. But like I said, it can be somewhat labor intensive.
One option for grass is to check with your local nursery or water department for the local variety of grasses that may not need as much watering. A natural variety to your area, or a drought-resistant type of grass will not require as much watering on your part. For example, the Colorado Springs Utilities have put together a Xeriscape garden in which you can go and look at different plants that are native to the area and require a lot less water. For can view information on the garden at http://www.csu.org/xeri/.
The are other options other than grass. One is rock. You would not probably want to rock over your entire yard even though I have seen this a lot. You will usally use rock in conjunction with some plants, but rock can be a very useful ground cover. One tip is to put some plastic or some other sort of weed block to keep weeds from growing up through your rocks.
You may also want to consider some other plant options if the area in question is not going to have much foot traffic. One truth about American home ownership is that most of us do not use our front yards much. I know as kids we were encouraged to go plan in the backyard as apposed to the front. Therefore, you may want to make you front yard a nice treat for the eye, as an ivitation to guests, but not to really be touched.
With this in mind you may want to consider steps to be taken in order to setup the yard and forget about it other than water. Rock is very useful for this but there are some low growing plants that you can use as well.
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