I'd stop and think before going with site  definitions. Scan the article
below (this is page 2, after the introduction) for the part about Site
Definitions vs. Features:

http://www.devx.com/codemag/Article/39028/0/page/2

We've been using a "projects template" that was built from our own sub-site.
It works fine. Make sure use use "with content" so the template  gets all list
workflows and all custom  edit forms that we built with SPD.

I know they work okay (I've definitely used them from
time to time, for some simple one-off sites), but I am thinking "long
term" issues...like problems  w/ upgrading, or if tons of sites  are
created from site  templates, will there be performance issues, etc.?

I'm just not sure I understand the differences between what happens
when you "save site as a template" and use that template  for all new
sites; when a "site definition" (which, I presume, is what the
OOB "templates" from Microsoft are, like "team site template") is
used; and features (which I'm still really struggling to understand
as a concept.

Keep in mind: our MOSS support is me, a semi-techie on a web team,
never getting on the server to do any admin stuff, and no development
knowledge or experience; two network admins who are still learning
the ins and outs of MOSS; and a new developer who isn't yet familiar
w/ MOSS and won't be working w/ it for another year or so. Great
bunch, eh? We worked w/ a consultant to upgrade from SPS to MOSS
(since we didn't trust ourselves to go it alone), and the consultant
did a lot of stuff using SPD (which made me really nervous), and now
our contract is done and we no longer are getting support from them.

SO, I get paranoid about stuff because I read or hear certain things
that are, unfortunately, over my head. I heard in a teleseminar that
the difference between site templates and site definitions  are that
site templates are saved  into the content database  (and that just
reminded me of the awful unghosting pages debates), and site
definitions are located on the server's file system. The guy in the
teleseminar mentioned potential  problems w/ branding efforts. It
almost sounded like sites created  from site templates
were "unghosted" in the sense that they would need to be manually
manipulated in the future to apply any changes (design-wise, I
guess?); that they were suddenly "detached" from the original site
definition.

I just don't want to go ahead and create a few site templates,
ensuring that our master page is applied and they contain the proper
lists and libraries and general settings we'd like for all users to
have (the whole reason we're creating our own templates in the first
place)...only to find out down the road that I was digging myself a
huge grave.

As I understand it:

Site definitions  do reside in the server file system (the "12 hive"). They
(or their cached versions) are referenced for all accesses to pages from
sites based on that site  definition. That means that changes to the site
definition are reflected in pre-existing sites.

Site templates are essentially "diffs" from site definitions. When a site
is created, it starts with the definition  the site template  is based on,
then applies the differences listed in the template. The template is used
only at site-creation time. Changes to a site template do not affect
pre-existing sites.

However, neither site templates nor site definitions are necessarily
self-contained. For example, the look and feel depend in part on "themes"
that can be selected from the web interface at any point in the site's
existence. In many cases, custom  themes can achieve required branding
without changing either site definitions or templates.

I believe master pages (either shared or per-site) can also be used for
branding, but I don't know any more about it than that.

In all, SharePoint offers many ways (too many?) to customize sites; working
through the maintenance and life-cycle implications of each method is not a
quick study.

So let me clarify some details:

Site definitions  do reside on the server file system. 99% of changes made to
them will NOT be reflected in pre-existing sites. They are used as blueprints
when creating a new site  but have no direct relationship to existing sites.

Site Templates are a record of changes that have been made since the original
site was built. So they reference a site definition  and then apply changes to
the base site created  from that definition. Their major advantage is that they
can be easily created using nothing but the UI. The major disadvantage is that
they don't retain all the changes made to a site when the template  is created.
For example, custom  security settings are not stored. Another disadvantage is
that they didn't upgrade well in the 2003->2007 upgrade path. That may change
for the next version but I wouldn't bet on it.

Neither Site definitions or site templates pass their changes on to existing
sites.

Features provide the basic building blocks from which Site Definitions are
built. So if you add a new feature to an existing site definition you can also
activate it on existing sites  and get the same effect as if they were built with
the site definition to begin with.

So, I can't say that I totally grasp this yet (remember- non-techie
here), but since we do have limited resources (no one here can
develop features or site  definitions, for that matter), I'm inclined
to just go ahead w/ the plan to "save site as template" and use for
future site creation. It sounds like it may muck up some stuff in a
future upgrade, but I really don't know what other options we have w/
our current (lack of) resources.

One quick question: you mention they did not upgrade well from 03-07.
We actually had a few sites  in 03 that were created  from "homemade"
site templates (made via the UI). The sites are functional in 07 and
appear normal (we have applied custom  master pages to all of our
sites). What specifically didn't migrate/upgrade well from 03-07? I'd
like to double-check to make sure these sites are okay.

And possibly related- what does "reset to site definition" do when
you choose this option for an entire site? Does it get rid of any
potential problems  related to using a "site template"? I know it is a
way to "reghost" customized pages, but does it relate at all to sites
created from a site template  as well?

This was not how I understood it either. I take it you're sure that changes
made to a definition  will not be reflected in existing sites.

Yes, he is sure, as are several others out there including me.

Now I have to go find someone and slap them on the back of the head.