Great questions. Here are a few thoughts:

o I see a lot of those upright wire folder holders in people's offices. Often they're used for three things: Action reminding, current projects, and old/outdated projects. I usually recommend getting rid of these holders (they're a temptation to old, less effective habits), but using them for current projects is OK, as long as they're not used to remind you of action. We use a centralized actions list for this. Personally I use the bottom shelf of my stacking shelves for current projects, with the top being "IN" (so you can pile it up), and the second being "Action Support." But remember, if you have set up a fully functional filing system (A-Z, no hanging folders, etc.) it should take you less than a minute to retrieve files. If it's taking longer, you should analyze the problem - it's holding you back.

o You'll want to carry the project folders to meetings, or between offices, so don't forget to pull them when transitioning (you might enjoy this post).

o I find it's no problem mixing project and general reference folders in one drawer (or set of drawers). It's A-Z, which makes it fast to find folders, regardless of type. The exception is if you have a very large project, in which case you can prefix folder names with the project, and add the appropriate suffix. For example I had a consulting gig, and I broke the project folders into: "KSC 2007-08 contract", "KSC 2007-08 plans" "KSC 2007-08 travel". What's nice is they all sort together in the drawer. Also, if the project is very large, it might need an entire drawer (or cabinet) dedicated to it. No problem, just use a separate set of A-Z index dividers/tabs for it.

o Cull your project folders when you finish the project, or wait until you have only 2" of empty drawer space and cull then to make some room.

o When you start working on an action related to the project, retrieve the folder (desktop or file drawer), pop it open, and get as messy as you like - spread papers out, group thoughts, whatever. However, when you're done, make sure you close up the folder and file it. This lets you use your desk as the way it's designed to be used: As a tool for working with one project at a time. (Merson suggests you keep a "clear 180" for project work at your desk - see Some thoughts on the book "The Instant Productivity Toolkit")

Hope that helps!