I was stunned, absolutely stunned to discover that plastic grocery bags are less harmful to the enviroment that paper. A simple Google search on "paper or plastic bags" will bring up a host of sites addressing the issue. For one, paper bags are made from trees, and mills pump tons of chemicals into the air in order to produce the bags, leading to air pollution, acid rain, global warming, etc. In the landfill, plastic bags take up less space than paper, and neither biodegrades because of the way that landfills are designed. It also takes a whole lot less energy to recycle plastic bags than paper. Plastic bags, however, are more likely to end up as litter - on roadsides, beaches and in the oceans - and are extremely harmful to wildlife.
The best answer, of course, is to use reuseable bags to transport groceries. (This might just be my New Year's resolution.) But if you don't, it seems the next best answer is to use plastic, and then recycle it at the grocery store - most stores offer this service. The site ReusableBags gave me most of this information.