timon,
I generally ignore PE as a techincal trader. To quote an oft-repeated phrase of Dennis Gartman, "the markets tend to remain irrational much longer than your margin."
My favorite stock has been the Potash Corporation of Saskatchewan (POT, NYSE). It has a PE of 31, but look at this three year chart:
POT Stock Quote - Potash Corporation of Saskatchewan Inc. Stock Quote - POT Quote - POT Stock Price
Google is an even better example. I remember the PE ratio was trading above 50 at one point. It has to come back to earth again at some point, as Google has done over the past 9 months, but think about how long it took for that to happen after breaking a PE of 30. That's a lot of missed opportunity.
Regarding liquidity, I avoid illiquid stocks like the plague. A lack of participants means that not all the gaps get filled, leading to excess volatility.
Volatility works both ways. I wish I could say once bitten, twice shy. It's more like "1,000 times bitten, a million times shy" in my case.