Google sees hyphens as separators and underscores as linkers, right
Matt was mostly referring to the rest of the url, not the domain name:
mysite.com/cheap-blue-widgets
(you can't have underscores in domain names anyway)
see here for an update from 2007, but it's the most recent update from Matt on the topic:
http://www.mattcutts.com/blog/whitehat-seo-tips-for-bloggers/
That said, the issue with dashes, is the same as with any other character you add: it lowers the percent of the domain that is emd:
cheap-blue-widgets.com and cheapbluewidgetsco.com both have the exact same domain/keyword ratio.
So, technically cheap-blue-widgets.com is NOT emd, it's a near emd.
Personally, I've had good results with a domain with 1 dash in it, it's not a handicap... but the power of emd is likely to diminish somewhat anyway, as G tries to reduce the factors that are easy for spammers to manipulate.
And finally, you should always take into account the "manual review factor" - would your domain name be marked as spam at first site if you had a manual review? ie:
my-cheap-and-free-blue-and-red-widgets.com
just make sure it looks presentable...