I used Trinet from 2003 to 2008 for my startup, with an average headcount about 10. I would do it again, unless you can find someone who can do all of this adminstriva reliably at a much lower cost. The also can get employee health insurance at large group rates - good luck trying to get that on your own. They also provide a risk shield against employment-related law suits. A PEO will provide typical HR perks that matter to anyone who is used to getting them - that is a factor in recruiting.
I haven't priced these kind of services in a while - it was certainly worthwhile then. I'm sure there are other PEOs with a story worth listening to - shop around.
I've also used PayChex for a two person boutique. This was just bare bones payroll, although they will get you hooked up with other HR services, a la carte. These hookups weren't worth it, but I continue to use PayChex for basic payroll.
NB: if you screw up payroll on your own, you will be in world of hurt - big penalties and possible criminal charges.