I have a 80/20 mortgage loan on a condo that I expect to live in for
at least 2 more years. The first loan is for 227k at 5.25% and the
second is for 28k at 7%.  My question is should i refi both loans into
one 30 year fixed loan or take out a home equity line of credit to pay
off the 28k loan at a lower rate?

5.25% is a great rate.  I'd be highly amazed if you could refi the
full amount at 5.25% without paying points or loan origionation fees
or some other randome hidden fees that lenders won't tell you about
until the final signing of the documents.
With this in mind, you won't be able to save money within 2 years by
refinancing.  If you can get that line of credit without much cost and
the interest rate is low enough to make it worth while, then that is
the way to go.  However if there are costs involved in getting that
line of credit then avoid them and simply pay extra every month
towards your 2nd mortgage.  And extra $250 per month on the principal
will wipe out that $28k very quickly.

Your saying "at least 2 more years".
YOU need to determine whether or not you WILL or WILL NOT be there in
2-3 yrs - in order to numerically derive an answer.  The addage is
true... it takes between 1.5 - 3 yr to makeup any costs associated
with REFI-ing your loans - no matter what the size or rate.
YOU need to ALSO CONSIDER just staying put with where you are at!
Getting a Home Equity Line of Credit (HELOC for short) is an
Adjustable rate.  With rates 'on the move' - speaking from my
profession as a financial planner - - the RISK is too great that the %
will move above 6-7% (easily) over the next 2-3 yrs.  45 yr lows...,
interest rates have no where to go but up... as they do... the cost of
banks to borrow that money gets more and more expensive - thus passing
those costs to you (the borrower).  As a result, your interest rate
will likely hike 1-to-1 with the Fed rate hikes.
YOU want to be left with the OPTION of staying or going in 2-3 yrs,
not BEING FORCED to due to the interest rate hikes coming.

SUMMARY:  Stay where you are!  Do nothing.  I'm sure there are
MULTIPLE other areas where you can "cut costs" - if this is your main
motive.  If it's just reducing interest, the risk is too great right
now to get a HELOC.  Stay put.

Stay put with the first!  However, you could probably refinance the
second mortgage at no closing costs at a lower rate (Provided your
credit score is above 680).  Citi, Chase and National City all have
fixed rate 2nd mortgages that could save you $.  Keep in mind, the
savings won't be huge (maybe $20-30 month) because the loan amoun is
much smaller compared to the first.