Just started doing SMD myself. I use 0805 for resistors (1/8W) and caps under 10uF. Some datasheets I've read, particularly for finer pitch parts, recommend 0603 for decoupling, which would help keep them close and not take up space needed to pass traces around them. I'll probably move to 0603 caps once I get my sea legs.
Working with them isn't so hard. I hand-soldered a little DIY SOIC-to-DIP adapter for an LPC812. It had one decoupling cap and two pull-up resistors. Not pretty, but it seems to have worked out OK. I drag-soldered the IC, and needed to use a little wick to undo some bridges. NBD. I just tried it by hand on a whim, and to my surprise, it wasn't as much trouble as I was expecting. Good tweezers and light are essential.
I also have a hot-air station, which is magical. I'm still working out how much paste to apply. I usually end up with too much. The stuff I've soldered so far is all too simple (just a couple dozen components, tops) to bother with a stencil, but I have a project coming up where it will be essential. Hoping to have the hacked toaster oven ready in time for that one also. No idea what the thermal characteristics of a wand held at arbitrary distance, and set for 350C, is actually like at the board level.
If I may thread-jack just a bit: Anyone have any tips (NPI) for cleaning removable solder paste nozzles after each use? Stuff's too thick to wash out in the tap, and the business end is too small to get much into them for scrubbing. I end up using small signal diode legs to poke and prod. Pretty tedious work.