Hey Jeff,
There really aren't any "best practices" for Vail development yet (outside of the documented SDK, of course). We're all trying out different ways of doing things.
However, when you're installing on Windows, you should be putting your code in Program Files, if you can help it. IIS doesn't care where the physical location of your web application is; when you "install" a web site or a virtual directory you provide the
physical path to the files as part of the setup process, so not putting stuff into INETPUB isn't a limitation.
Tentacle Blog:
http://www.tentaclesoftware.com/blog/
WHS Disk Management:
http://www.tentaclesoftware.com/WHSDiskManagement/