A coworker and I are locked in a debate over the value of SEO keywords in the URL of a page. She wants to change all the filenames of the HTML pages of a fencing company so they look like residential-home-chicago.html, contact-chicago-contractor.html, and so on. She is convinced that because Google highlights keywords in URLS in search results, that means that putting keywords here is more valuable.

My position is that these do not improve SEO, since Google doesn't seem to give keywords in the URL any more weight than keywords in the body of the page, and might even give them less weight. In the meantime, they make it harder for me to find the pages I want when its time to edit them, and the site as a whole looks cheap and spammy.

Google's own SEO guide suggests to me that yes, keywords in URLs are useful, but not superior, and that they are more useful for human readability than search engine rankings.

I'm looking for authoritative sources that support either position, not blog articles from SEO optimization companies trying to promote themselves.