Shawn, I've been experimenting with this as well. Here is what I've learned so far.

1. I try to respond to most comments, but sometimes I don't or there doesn't seem to be a response called for.

2. I've tried responding on the commentor's blog, and then tag it on delicious with mycomments tag so I can find/track it later. What I find is that if I take it to their blog I quickly forget where I've posted what. The delicious tag is an effort to better track, but still, it requires me to pay attention a bit more than I have time for.

3. I've seen some folks experimenting with a hybrid between Wikis and Blogs. Ton Zylstra was writing about this last fall. For me comments rarely get to the dialog or conversational level. Too "ping pong-y" - so maybe there is a solution that is part tool, part process.

Not all comments warrant a response from the blogger. My approach is to respond to all that do with a comment. I think any sort of back-and-forth is best done in one place, where you don't need any mouse-clicks to navigate through the discussion. And if they wrote a comment that looked like it wanted a response, I assume they'll check back for one (ideally, most blog comment systems would have more advanced message board features, like automatic notification, but alas...). If my response is much later than the original comment, I sometimes send an e-mail as well.

If the comment gets too long, I make it a blog post and create a comment linking to it. I view comment sections as a place to find diversity of opinion, the spirit of which is stifled by a long comment.

In addition, I try to make it a habit to at least check out the commenter's blog, and if I comment there, it's generally on one of their blog post's topic, and not my original post.