I have experience with AutoCAD (versions 10 -> 2000) and UG (versions 15, 17, and NX). The first company I worked for (up until about 3 years ago) was a small, privately owned business that had a tight budget for CAD software. One of the engineers there actually did all his work on the drafting board, since he had not learned a CAD program. The other guys (myself included) used either CADKEY or AutoCAD. We designed in 2D and output drawings -- much like the first engineer; our only real advantage was that after the 3rd major revision we still had a legible drawing. Drawing and dimensioning each part individually, then pulling these together into an assembly was a painstaking process in itself; compound that with the need to make a revision and you can see what a headache it was (especially when there are multiple views that you need to hunt down the changes in each). Interference checks were also a nightmare. Many revisions were due to the fact that interferences were difficult if not impossible to detect in that jungle of lines and arcs. Looking for a better way, I picked up a book and learned about the 3D features of AutoCAD. This improved the situation somewhat; interference checking was much easier, and I could let the program generate the drawing views I wanted (though there were still some hoops to jump through to generate/update views). Editing the solid model was a joke (nothing was parameterized or associative) but it was still better than the 2D method. The company bought a coordinate measuring machine that came with a copy of Mechanical Desktop version 4 (another Autodesk product - based on AutoCAD). After reading the feature list, I jumped on the bandwagon and never looked back. Life was great, I could edit the models and drawing views updated almost effortlessly. I could now spend time designing rather than doing drawing housekeeping. I now work for a larger corporation that uses UG. Our toolmakers make tools based off of the actual part files, so the drawings are less of a priority but they are still important for QC. With the complex parts we are designing now, I can't even imagine how long it would take to draw multiple views by hand, let alone a whole assembly! (and that's not even considering changes along the way - and there are a lot of them during the development cycle).
Sorry to make a short story so long, but if you can't tell by now I fully support designing in 3D and allowing the program to generate the drawing views (3d program of your choice - and I don't consider plain AutoCAD to be a serious 3D program). It has been my experience that 3d has eased and accelerated development.