Auction drafts are awesome.
As for what you do, I think you need a valuation strategy before you decide on a team structure.
I use VBD and convert the VBD results into auction dollars. I tweak things until prices look like what I think the players are worth, and then I use that to guide my buying decisions in the auction. I do force myself to stick to a starter/reserve budget, which I've had at 82% starters last year.
Some people go with a last-in-tier theory. Basically, you get your guys tiered in roughly $5 tiers (assuming $200 cap). Then, you make sure to get one of the guys in the tier - the one who comes cheapest. If your tiers are roughly in line with the league's valuation of those players, you should be able to get one guy in the tier at a modest bargain.
Some people go in with a specific plan to buy certain players - one of the top three RBs, Peyton Manning, Randy Moss, Antonio Gates - lots of people will be building auction plans around spending for one of these players. I would say to plan for each of them, and set the highest price you would pay for one of these guys before the auction.