Michael Washington explains in detail the steps required for packaging a module at:

http://www.adefwebserver.com/DotNetNukeHELP/DNN_PackageModule/Default.htm

However, there are 2 points that are missing from that tutorial:

1) The DLLs are created Folder wise. That means dll for code-behinds in DesktopModules & App_Code files are generated separately. And if there are sub-folders in the main module folders, they again have separate assemblies generated. But I have seen modules (including those shipped with DNN) have just 2 assemblies, the main logic assembly (including code-behinds) & the SqlDataProvider assembly??

So, how can I achieve the same, while preserving the folder structure of my module (or would I need to put everything in the same folder)??

2) I don't want to provide my clients with the ascx markup. So, if I create my assemblies without the following option:

Allow this precompiled site to be updatable

Would it be possible for DNN to pick up my module controls from the assembly. If yes, then how should I provide the control entries in the <controls> & <files> section of DNN configuration file for my module???

I have found WSP approach better for development and WAP approach better for deployment. With WSP, I can modify the code-behinds without having the entire installation to recompile (off-course changes to App_Code classes need recompilation).

Although, I have not checked it, I believe that when you debug WAP projects by attaching to ASP.NET process, the source code files (including code-behinds) would be locked up by VS. In effect, you would need to stop the process, make the change, restart & re-attach.

I believe converting from WSP to WAP should not be difficult, as code classes from App_Code can be simply copied. I have no idea about what to do with control (ascx) files & code-behinds as I not developed any WAP projects before.

Any idea for how to convert an existing DNN WSP module to a WAP module or know of any automated tools for that???

So, you mean that I just need to copy, paste my existing files into the new WAP project ensuring that none of them gets copied to the App_Code folder, and that would be it?? If that's so, I would always develop my projects as WSP & deploy them as WAP.

That also means that I dont need to copy my files into the WAP project. I can just reference them from the new WAP project, by selecting 'Add Existing Item' option from VS context-menu appearing on right-clicking a Project node in Solution Explorer.