I've read conflicting opinions on whether or not to re-hydrate dried yeast. I've had successful fermentation with dried yeast in the past but have not tried re-hydrating. Has anyone had better/worse experience with one way over the other?
I would always recommend creating a yeast starter - with dry or wet yeast. A small 500 - 1500 ml starter helps the yeast get off to a great start in the new brew.
To make a starter - pour 1 L water in a small pan, add 1/4 pound dried malt extract, a teaspoon of yeast nutrient and about half a hop pellet. Boil this for 10 minutes - then cool to about 70 degree Fahrenheit. Pitch your yeast in this and wait 1 day before using it for your new batch of beer.
This will help any yeast, wet or dry, but especially dry, as there are typically not enough cells in the dry package for a proper pitching rate. It also tends to produce a cleaner, better fermenting beer that floccuates more fully.
I would always recommend re hydrating the yeast. For some beers, especially in the 1040-1060 range you probably don't need to make a starter, as the yeast packet actually contains enough yeast for a beer that size.
Instead of guessing, use a Yeast Pitching Calculator, like Jamil Zainasheff's here. Too much yeast can be a problem, too.
You can make great beer without rehydrating dry yeast, because as you are pitching trillions of yeast cells, you can stand to kill a lot of them. If you rehydrate in wort, the osmotic pressure on the yeasts is not ideal. They really just want water and a higher gravity rehydration can kill the majority of the dry yeast.
Ideally, for the fastest start, it is recommended that you rehydrate the yeast in 90-100F water, then allow it to slowly cool down to the temperature of the wort into which you are pitching. One way to do this is to rehydrate for 15 minutes, then double the volume of the rehydrating yeast with some of your wort. I have had batches with a kraeusen in under 8 hours with rehydrated yeast.
We all know that getting a fast start helps your pitched yeast outcompete unwanted yeasts, bacteria, etc. Also, the more active yeast you pitch, the shorter and more complete your fermentation.