Once upon a time, I avoided Eclipse for Android development. And life was good.
Along the way, I adopted a convention originally supported by the Android command-line bu
Depends on your toolset:
ADT >= v12 currently has flaky support for "a project within a project":
Creating an Android Test project in Eclipse
I have tried separate testproject, and separate test directory, but afaik "a project within a project" approach seems to be the way of the future.
This is becuase AndroidManifest.xml merging into the test project AndroidManifest.xml, is in the pipeline for the next ADT releases.