Simple (standalone) and binary project self-hosting each have advantages and disadvantages. The style to choose largely depends on the usage scenario. In general, the following recommendations apply:
The choice of self-hosting style is not something you must do upfront. When searching for plug-in references, PDE looks in the workspace first, then tries enabled external plug-ins. If binary projects are present, it will use them. Otherwise, it will use external libraries qualified with ECLIPSE_HOME variable. When switching between styles, all you need to do is re-compute class path of the plug-ins under development.