There is a new attribute, configSource, that looks promising because it can be used to redirect .NET from looking at the app.config (or web.config) and instead make it look at an arbitrary generic user.config file for its content. The problem with this approach is that it requires every machine to have this user.config file in the same place. What I want is more like what the old file attribute of appSettings provided. Unfortunately, the new tools in ASP.NET 2.0 get the connection string information from the connectionStrings section, so using the appSettings approach is out-dated.
For now, I'll use configSource, but it is a pain to have to tell each memeber of the dev team that they need to create their very own user.config file and place it in a certain directory, since this usage means that you wouldn't want to check user.config into your source control system.
Take a look at J.D. Meier's paper, How To Reference Web Services and Databases During Development, for some concrete samples on how this looks.
Disclaimer The opinions expressed herein are my own personal opinions and do not represent my employer's view in any way.