The consensus of experts is that drapery rods are to be hung at least 3 inches above a window - including the trim. If you have tab top drapes or are using rings, it should be higher so that the drapes themselves (below the tabs or rings) are still above the window.
This has been consistently stated in all my research.
But I have a problem. My windows are very tall, and I have crown molding around most of my first floor. I simply don't have the space. Frankly, I think the window and valance look fine as shown in the picture. Now, I will admit that upstairs where I don't have the crown molding, my drapes would probably look better hung higher.
So my final verdict on this advice: Where you can, hang your drapes and drapery rods above the window. But if you just can't, don't sweat it. Hang your window treatments as high as you are able with beautiful curtains, drapes, valances, or swags.