Proper asset allocation is more important than fund expenses. In that, I mean this:
If you are choosing your funds from a low cost fund group like Vanguard, that is fine. But you shouldn't be choosing the specific funds within Vanguard with expenses as the main, or even close to, the main reason.
Proper asset allocation will drive returns more than any other factor. The problem is that *true* proper asset allocation (and re-balancing for that matter) is difficult, if not impossible, for the average person. Asset allocation is most certainly not just doing something like 60/40 stock and bonds...it is WAY more copmplicated. Youi need exposure to most all asset classes, in proportions that fit your needs/time horizon/risk tolerance, but they must fit together properly. You need to analyze the funds together to make sure they are on the efficient frontier, they have little overlap in their holdings, etc, etc.
A study was done that showed 91.5% of a portfolios long term performance was due to asset allocation, with 8.5% due to market timing, fees, and other factors.