Personally, I unpack each library myself from files.wowace.com but that's because I like having a very carefully managed and sanitised environment, being a scatterminded developer. I did take a look at WoWAceUpdater though and I heartily recommend that to just about anyone, I love the ways in which it can be customised and if ever I were to create a compilation, I'd toss that in with it.
As for libraries versus embeds, what I've heard and learned is that there are only two real downsides of embeds, disk space and loading times, both of which were covered earlier. If you feel you're getting into game fast enough and you don't feel you're lacking a few megabytes here and there that you could put to better use elsewhere, then you're probably best off running with embeds. It's less to worry about and more time to play, since Ace2 manages them gloriously. If you find that your loading times are getting a bit out of hand, especially if you run a lot of Ace2 stuff then it might be time to clean out the embeds and use standalones.
The best way to do this in my opinion is to write down the Ace2 mods you use and then delete them (thus clearing out all embedded files), after that grab the WoWAceUpdater program and run through it, first of all tick all the Addons you used to have and download those, tell the updater to not download the embeds (it's an option from the File menu) and away you go. After that you'll need the libraries and here's where another option comes into play.
If you're not feeling adventurous, simply check anything that says its a library in the updater and download as before. If you are then go into the toc files of each of your Addons and note down anything following the RequiredDeps, Dependencies or OptionalDeps lines. With that info at hand, return to the updater and tick only the names of the items you found.
To make this process easier, you could use a batch file to scan the tocs for you and present the information on the libs you need, it wouldn't be perfect but it would save having to open up lots of toc files. I've actually got such a file and I've uploaded the toc at
pastebin.co.uk. Download the file to your Addons folder then rename it to peektoc.cmd or similar, you can open it in notepad first if you like to make sure it does nothing bad. All it does is uses findstr to collect the OptionalDeps, RequiredDeps and Dependencies lines from each of the tocs.
Anyway, I hope that was helpful. If anyone has any other questions, I'll do my best to answer... though I'm no authority I have to warn, so there's a lot I don't know either.
(Edit)
Oops, forgot to mention, the batch creates Libs.txt which contains the toc info.