After I installed Adobe Acrobat on my Mac, it overwrote the PDF preference for Safari and became the default application to open all PDFs within the browser. This is a pain becase Acrobat is a resource hog, slow, and more likely to crash than Preview.app. It took me awhile to trace down how to restore the default functionality since it's not in Safari preferences as one would think.
It's actually in Adobe Acrobat. Open Acrobat and choose _Acrobat > Preferences_ and select the _Internet_ catagory. Uncheck all the boxes as shown above and restart your web browser. Once again Preview.app is happliy opening PDFs within Safari! This has been tested on Acrobat 7 and OS X.