Looking at research like the studies by Stinson on self-esteem, relationships and illness (Stinson, Logel et al. 2008), it's easy to start to see self-esteem as a "the-more-the-better" quality.  It is true that higher self-esteem is robustly associated with higher levels of happiness, increased initiative and less tendency to depression and eating disorders.  As Baumeister and others have reported however (Baumeister, Campbell et al. 2003), high self-esteem is not necessarily associated with improved job or academic performance, it is not necessarily associated with greater popularity or interpersonal skills, and it may well not protect against violence, inappropriate sex, or substance abuse.  As the abstract to Baumeister et al's forty page review states:

"Self-esteem has become a household word. Teachers, parents, therapists, and others have focused efforts on boosting self-esteem, on the assumption that high self-esteem will cause many positive outcomes and benefits - an assumption that is critically evaluated in this review. Appraisal of the effects of self-esteem is complicated by several factors. Because many people with high self-esteem exaggerate their successes and good traits, we emphasize objective measures of outcomes. High self-esteem is also a heterogeneous category, encompassing people who frankly accept their good qualities along with narcissistic, defensive, and conceited individuals. The modest correlations between self-esteem and school performance do not indicate that high self-esteem leads to good performance. Instead, high self-esteem is partly the result of good school performance. Efforts to boost the self-esteem of pupils have not been shown to improve academic performance and may sometimes be counterproductive. Job performance in adults is sometimes related to self-esteem, although the correlations vary widely, and the direction of causality has not been established. Occupational success may boost self-esteem rather than the reverse. Alternatively, self-esteem may be helpful only in some job contexts. Laboratory studies have generally failed to find that self-esteem causes good task performance, with the important exception that high self-esteem facilitates persistence after failure. People high in self-esteem claim to be more likable and attractive, to have better relationships, and to make better impressions on others than people with low self-esteem, but objective measures disconfirm most of these beliefs. Narcissists are charming at first but tend to alienate others eventually. Self-esteem has not been shown to predict the quality or duration of relationships. High self-esteem makes people more willing to speak up in groups and to criticize the group's approach. Leadership does not stem directly from self-esteem, but self-esteem may have indirect effects. Relative to people with low self-esteem, those with high self-esteem show stronger in-group favoritism, which may increase prejudice and discrimination. Neither high nor low self-esteem is a direct cause of violence. Narcissism leads to increased aggression in retaliation for wounded pride. Low self-esteem may contribute to externalizing behavior and delinquency, although some studies have found that there are no effects or that the effect of self-esteem vanishes when other variables are controlled. The highest and lowest rates of cheating and bullying are found in different subcategories of high self-esteem. Self-esteem has a strong relation to happiness. Although the research has not clearly established causation, we are persuaded that high self-esteem does lead to greater happiness. Low self-esteem is more likely than high to lead to depression under some circumstances. Some studies support the buffer hypothesis, which is that high self-esteem mitigates the effects of stress, but other studies come to the opposite conclusion, indicating that the negative effects of low self-esteem are mainly felt in good times. Still others find that high self-esteem leads to happier outcomes regardless of stress or other circumstances. High self-esteem does not prevent children from smoking, drinking, taking drugs, or engaging in early sex. If anything, high self-esteem fosters experimentation, which may increase early sexual activity or drinking, but in general effects of self-esteem are negligible. One important exception is that high self-esteem reduces the chances of bulimia in females. Overall, the benefits of high self-esteem fall into two categories: enhanced initiative and pleasant feelings. We have not found evidence that boosting self-esteem (by therapeutic interventions or school programs) causes benefits. Our findings do not support continued widespread efforts to boost self-esteem in the hope that it will by itself foster improved outcomes. In view of the heterogeneity of high self-esteem, indiscriminate praise might just as easily promote narcissism, with its less desirable consequences. Instead, we recommend using praise to boost self-esteem as a reward for socially desirable behavior and self-improvement."

As this abstract indicates and Oscar Wilde stated "The truth is rarely pure and never simple".  Feeling good about oneself is associated with greater happiness and greater satisfaction with many aspects of one's life.  This is a very worthwhile outcome.  Good quality self-esteem - not narcissistic self-aggrandizement - is likely too to be associated with a better relationship network.  Those with high self-esteem initiate interactions more easily and tend to rate their relationships more highly.  Self-esteem is not however a panacea for hard work, kindness, empathy and a host of other important attributes. 

Baumeister, R. F., J. D. Campbell, et al. (2003). "Does high self-esteem cause better performance, interpersonal success, happiness, or healthier lifestyles?" Psychological Science in the Public Interest 4(1): 1-44.   [Abstract/Full Text]   

Stinson, D. A., C. Logel, et al. (2008). "The cost of lower self-esteem: testing a self- and social-bonds model of health." J Pers Soc Psychol 94(3): 412-28.  [PubMed]