Scott Guthrie has announced the release of version 1.0 of Visual Studio 2005 Web Application Project. This brings the VS2003 style web projects to VS2005, providing Project files, removing app_code directories, and all of the code is compiled into a single deployable assembly which can be referenced. It also enables Edit and Continue for Web Projects in VS2005.
This is the way it should have been done in the first place. When we moved to VS2005, the clunky nature of the default web project was a nightmare, and I'm not really sure how it was supposed to benefit developers. You can get the VS2005 Web Application Project here.