I personally will always chose to create a browser facing web based product as a Web Application in Visual Studio 2010. The main reason being that Web Applications actually create a project file containing all of the configuration details for your application. The other being that you don’t need to set anything up in IIS on your local machine.
I recently inherited a Web Site that needed some changes. It was an asp.net site, and the first thing I did was to convert it to a Web Application, just to at least get that explicit definition of what was in the project from the Project file.
It also makes debugging easier if you need to debug your site from the root of your localhost – IIS Express and Cassini will just run a Web Application on a specific port from the root. Web Sites however will run from a Virtual Directory (e.g. http://localhost/MyWebSite/). Web Sites can be configured to run under a port, but it isn’t a simple process.
And of course the other advantage of having a Project file containing all of your Web Server configuration for debugging is actually stored within a file, that can be kept under source control, and can be shared with others without the need for lengthy debugging instructions.