I gotta vote "NO WAY" to objects in model space and text in paper space. A couple reasons:
1. Biggest reason of all- You can be in model space and have no idea what is in paper space. They need to share the same "space" so you get the look / fit / feel right. I know you can work in MS through PS but then you have the added task of switching back and forth all the time.
2. Efficient use of layers keeps it simple and as clean as possible. Suppose you are working on street improvements at an intersection. You call out a station and offset for various entities such as curb returns, scuppers, fire plugs, manholes, water valves, etc. However, the station and offset for one street will have different values for the intersecting street. Also, you N-S street may be on a different sheet than your E-W street. So now, you would propose that the street entity be in model space, some text is on one sheet (N-S street plan & profile) and some other text is on another sheet (E-W plan & profile). No way. If you learn to make everything dynamic, you move a fire hydrant, all labels automatically update since they are tied together.
3. Probably about 50 other reasons...