For the impatient, read Stephens reply
He benchmarked what I asked and concluded that
$("p", $("#foo")) is much faster in jQuery 1.3.2. I've been coding this style in jQuery for all recent projects so I'm happy with this outcome.
John Resig himself joined in on the discussion and had this to say:
"You should always use $("#foo").find("p") in favor of $("p", $("#foo")) - the second one ends up executing $(...) 3 times total - only to arrive at the same result as doing $("#foo").find("p")."
Not only did John join in on the discussion but it also made him work on jQuery 1.3.3 (not yet released at the time of writing) so that it doesn't matter which format you use you get the same performance. See the benchmark here