This topic definitely needs more attention. It wasn't/isn't a pleasant process. So great job on laying some ground rules.

Being able to promote smoothly through environments (4 in our case) was high on the list on our newest project. I can't say it was pretty, in the end we went with XML config files with relative paths. What's good is that it works, and we never mess with anything but the configurations once it starts moving through the promotion process.

I can really see the attraction of database configurations but I cannot ever get comfortable with environment variables... maybe it's just me.

What I have yet to see is a good (hack or not) way of securely maintaining credentials etc for say connection managers which don't authenticate with Active Directory... e.g Oracle.