Holy cow. We've been lucky so far then. We've been naming the project after the database. What a mess.
With the initial release, I did find that we were hacking the XML, but after the first service pack, we haven't had to do that.
Visual Studio provides a mechanism for creating more configurations with the Configuration Manager. Just don't get caught by the fact that there is a Solution Configuration and a Project Configuration. Until we had that seperation clear in our heads we ran into all kinds of problems.
I haven't seen the 2008 version yet, but if it fixes the .user issue, I'd love to know. That'd give me a fantastic excuse to upgrade. I'm sure they'll address this soon. I'm pretty sure they're aware of it. If I recall correctly, and hopefully no one will beat me if I don't, I asked Gert Drapers about the .user file and he acknowledged that they shouldn't have stored the connection strings there and would probably be fixing it in the future. That was at PASS last year.
We're using this tool more and more because it really is fantastic. But, because we use it more and more, all the little gotcha's get magnified.