Most people either use a small Atmega328 board (ie a pro mini) or other breakout board, either supplied assembled or which they themselves have soldered the part down to.
In addition to general purpose breakout boards for different packages, boards meant for use with AVR chips, including the ISP header and an FTDI header for serial are available (sometimes assembled). I sell somein my Tindie shop for the mega x8 and most ATtiny's (including the awesome 841 and 1634), and I know Crossroads sells some nice ones for the ATmega1284p, which is also an excellent chip. Having the ISP header and decoupling caps + crystal right on the board makes things a lot easier, while small boards are available that are suitable for including in projects.
If you're more serious about a custom design, you might design your own PCB (it's not that hard, hell, even I can do it) after prototyping with a generic board.
Assembling SMD components is not that hard - the harder part is getting an appropriate board imo. If you don't know about drag soldering and try to solder each pin individually (or if you don't have a board and are "dead bugging" it), it's very hard - but you don't have to do it that way.
Get some flux, and a half-decent soldering iron (I always recommend used wellers from ebay with the teal blue case - they'll outlive you; even the cheap ones with magnetic temp control are fine. The later ones that aren't teal blue don't seem to be of the same quality. There are also some passable ones by Hakko that a lot of people seem to use) and youtube "drag soldering" for some instructional videos. It's like magic - you just touch the iron with a tiny bit of solder to the flux'ed pins... and there's a puff of smoke, and you look down and the pins are soldered. The first time I did it, I instantly got better results, even with no practice.
SOIC is a cinch with drag soldering (easier and faster IMO than DIP into protoboard - no lie), and TSSOP, TQFP isn't that bad either. Anything without leads (like QFN, DFN, etc) is rough though without a reflow oven and stencils - it can be done, but it's harder.
Passives like resistors and stuff, you put a bit of solder on one pad per part, position part with tweezers and hit that side, then go back and do the other end.
It's nowhere near as bad as some people say it is, but you need good lighting, appropriate glasses (if you need them), solder sucker, non-radio-shack-grade soldering iron and tweezers. Use 60/40 leaded solder if you can, it's much easier to work with than lead-free.
An arduino mega, or an arduino uno, or pro mini, or micro/leo can be used as an ISP programmer to program and bootload chips. You can also get a USB Asp for like $3 on ebay, and these work great, and there's a lovely GUI that you can use with them too to view flash/eeprom/fuses on the chip (I have found this incredibly valuable), or use a pro mini or micro (both about same price on ebay) put ArduinoAsISP on it and dub it your ISP programmer.
Also, as it happens, I sell some generic and less generic prototyping board (buy from my tindie, or see my product page), some of which has a bunch of footprints for common SMD packages.
