I guess every developer has it's own way of dealing with it.
When I started writing extensions there wasn't much information available regarding flat chrome packages. I ended up writing some Makefile style stuff unsing Ant (Java make tool).
Now all I do is install a new .xpi once and after that it's just using the DOS box history to repeat the same command again and again to build a new chrome .jar and copy it into my profile directory.
All that remains is stopping and starting FF.
I realize that I could improve that - but hey, we all have bad habbits.
The major advantage I have from my approach is that I can use some simple preprocessing which enables me to build Mozilla and FF specific code from one source tree.
If anyone is interested the code is documented at http://www.radebatz.net/mano/mozilla/extensions/build/

I don't have the answers to your questions, but I do hope that you will start writing the docs and that mozilla.org's docs initiatives will bear fruit soon.