Darren has posted up about how he and Grant are using Web Application Projects (link to WAPs here) on a real life project (good man!). Anyway – he encountered an issue with MasterPages being controlled via the Web.config file where it doesn’t get rendered in the designer.
He posted up a workaround which gets him a subset of the designer surface working but without the WYSIWYG MasterPage surounds in content pages.
Like Darren says - this is a small price to pay to have a real project file and all that goodness that entails.