I believe you should focus on the ball and keep your opponent in your peripheral vision as much as you can. Since you will running after - and reacting - to the ball, you should be concentrating on that. You can 'see' your opponent anyway, and the more experienced you get will be able to pick up little hints such as flat-footedness, leaning in one direction, racquet down, not standing on the 'T', etc, to help you decide where to hit your next shot. Also, watching your opponent as he is hitting and not the ball can trick you into going the wrong way all too often... Anyway, that's how I see it...

By keeping my focus short I am still able to see where the ball is going and what my opponent is doing -- in fact I can see both better than I could if I was focusing on either. But I agree with everything you are saying, that it is important to pick up cues from your opponent to help your decisions.