I think your height indicates you need a smaller size bike than the "average" 5'4" woman. Put 700 wheels on a small bike and you'll have annoying toe overlap (your toes hitting the wheels at slow speed and tight turns).
I don't think it's fair for you to compare a 650x23 to a 700x25. A wider tire is going to be fatter all around, have more air, and thus plusher ride. What i hear is the 650 tires are generally plusher comfier ride than 700s, if width is equal. 650's come in all kinds of widths, including really wide 38cm.
Here's one good article with some info:
http://www.sheldonbrown.com/650b.html