Checking in packages from NuGet into version control?

No

Since this question was asked there is now an easy workflow to use NuGet without commiting packages to source control

From your package manager console you need to install the 'NuGetPowerTools':

Install-Package NuGetPowerTools

Then to enable your projects to support pack restore you need to run another command:

Enable-PackageRestore

Now you are ready to commit your code base without the packages folder. The previous command changed your project files so that if packages are missing they get automatically downloaded and added.

Source

Using NuGet without committing packages to source control

Yes. Consider the "packages" directory to be equivalent to your "libs" directory that you mentioned in your question. This is the approach I personally take with my OSS projects.

We are investigating features that would allow MSBuild to auto download the needed packages, but that hasn't been implemented (as of NuGet 1.1).

I think some people may have already implemented such features on their own, but our plan is to look at having that feature built in to NuGet 1.2 or 1.3 hopefully.

Despite all the answers here, it is still a plain ole' horrible solution to not have all your dependencies under "some kind" of version control.

For GIT, this would mean GIT-LFS.

The recent episode with NPM shows why: If the internet repository of which you depend breaks, are unavailable etc., well then you're screwed aint you?

You are no longer able to build your stuff - and therefore not able to deliver.

Since asking the question, I've put in the following approach so that I do not have to check in the toplovel Packages directory.

In a toplevel build.msbuild file:

<Target Name="NuGet">
    <ItemGroup>
       <NuGetPackage Include="*\packages.config" />
    </ItemGroup>
    <Exec Command='libs\NuGet.exe install "%(NuGetPackage.FullPath)" -o Packages'  />

    <!-- optional for project that has JavaScript content -->
    <CreateItem Include="Packages\*\Content\Scripts\*">
       <Output TaskParameter="Include" ItemName="NuGetJSFiles"/>
    </CreateItem>
    <Copy SourceFiles="@(NuGetJSFiles)" DestinationFolder="MainProj\Scripts\" OverwriteReadOnlyFiles="true" SkipUnchngedFiles="true" />
    <Delete Files="MainProj\Scripts\.gitignore" />
    <WriteLinesToFile File="MainProj\Scripts\.gitignore" Lines="%(NuGetJSFiles.Filename)%(NuGetJSFiles.Extension)" /
    <Delete Files="@(PostNuGetFiles)" />
</Target>

In each project.csproj file

<Target Name="BeforeBuild">
    <Error Condition="!Exists('..\Packages\')" Text="You must run &gt; msbuild build.msbuild to download required NuGet
Packages" />

    <!-- optional for project that has JavaScript content -->
   <ReadLinesFromFile File="Scripts\.gitignore">
     <Output TaskParameter="Lines" ItemName="ReqJSFiles" />
   </ReadLinesFromFile>
   <Message Text="@(ReqJSFiles)" />
   <Error Condition="!Exists('Scripts\%(ReqJSFiles.Identity)')" Text="You must run &gt; msbuild build.msbuild to download required NuGet JS Package - Scripts\%(ReqJSFiles.Identity)" />
 </Target>