Prototyping has probably never been the simplest stage in product development, but it is certainly getting more complex.
Maybe "more complex" isn't quite the right phrase. If you've ever wire-wrapped a few dozen or more chips together, you have a different understanding of the word "complex" than do most people.
If you're using newer chips, wire wrapping isn't even an option, nor is point-to-point wiring. Fortunately, it's pretty easy and relatively inexpensive to get a small number of PCBs fabbed up quickly, but having a PC board in hand doesn't mean you can actually do anything with it.
You can't be assured that the chips you want to use are available in hand-solderable packages. For example, most Bluetooth radio modules only come in 0.5mm pitch BGA (Ball Grid Array) form factors. ZigBee radio chips all seem to come in QFN (Quad Flat pack No lead) packages. A lot of power components that used to come in big TO-220 packages are now showing up in micro BGA and QFN packages.
I recently ran across a Class-D amplifier in a 0.3mm pitch BGA. That's simply madness.
So what's an engineer to do? If you're lucky, you can hand it over to some technicians and make it their problem, but that's not all that nice, nor does it often get the prototype any closer to being built.
So what are the options? Like so many things in life, the answer comes down to the time vs. money equation, along with a few other factors.
If you have a lot more time than money, and the parts you need come in large form-factors, you can still use a solderless breadboard or a perf-board with point to point wiring.
If, on the other hand, you have small surface mount parts, those options won't work. You will need to take the printed circuit board route. That being the case, you may be able to hand-etch or CNC mill-out smaller PCBs, but at some point those methods become too time consuming or error prone.
One of the biggest problems with hand-etched, milled PCBs and small parts is the lack of solder mask. Solder mask goes a long way towards preventing bridging and keeping the solder where you want it. The resolution generally won't be adequate for small parts either.
The most reliable option is a commercially produced PCB. But, again, there's a time vs. money trade off. If you have plenty of time and are in a price-sensitive environment, you can get boards from a place like OSK Park. They're very inexpensive, good-quality PCBs, but there's no promised timeline. It's just a matter of when a panel gets filled up. They're on the "more time" end of the spectrum. When time is a determinant factor, a place like Sunstone Circuits (they used to be called PCB Express) can get boards to you the next day without soldermask, or in as little as two days with soldermask.
Parts are probably the easiest component of prototyping to deal with these days. DigiKey can get you parts by 8:00 a.m. the next morning in most parts of the US. Not long ago, most parts distributors didn't want much to do with you if you weren't buying large volumes. That's changed now and there are a number of places that specialize in low-volumes of components.
Assembly -- getting the parts soldered in your board -- has a time vs. money trade-off too, with component form-factor as an additional consideration. Some people will still hand-solder surface mount boards, but doing so pretty much removes BGAs and QFNs from your arsenal. Big Mosfets will probably not end up with adequate solder underneath either.
Another option is to set up a controller on a toaster oven or electric skillet and reflow the surface mount boards yourself. Some people have good success with this method, but it requires stencils and messy solder paste. For complex boards, especially with a lot of small geometries, a commercial assembly house like Screaming Circuits (where I spend my days) is, again, the most reliable option. The commercial places use robotic pick and place machines and carefully controlled reflow ovens. You pay for that capability, but again, it's the time (and complexity) vs. money balancing act.
Most people I talk to are willing to hand-solder components, down to 0805 or 0603 passives. I did run into a guy who has hand-soldered 01005 passives. He said they had a bit of a competition going in in their engineering group to see who could tackle the smallest parts. (I've hand-soldered 0402s, but only a few.)
What's the smallest part you've hand soldered? If you can't hand solder, what do you do to get your protos built up?