It a combo of methodology for us but we generally can't book anything last minute (other than extended weekend trips) due to work commitments.
We obviously have a list of places we're interested in. We'll randomly decide this is the (upcoming) year we're going to do X and we'll start airfare price watching.
Alternatively, we're on a twitter feed of an airfare deal group. We'll watch for places we're interested in going to both new and repeat and try to make a quick decision if we want to take advantage of the deal since the deals generally don't last long. These deals also serve as a foundation for us to do modified searches based on the core itinerary by adding stopovers, adding a leg, etc and see if we can still get a great deal. Alternatively, the LCC's in Europe and Asia will also allow us to make side trips from the core itinerary. We're also not adverse to getting a train pass as they allow for a little bit more spontaneity and randomness for some situations.
We don't plan to a T. We make a list of what we want to see, do, and eat at a destination and roughly slot them into a daily schedule (eg. morning slot, afternoon slot, evening slot). eg. Some things need to be done or are better done on certain days. If things don't play out as expected (eg weather), we can easily move things around. What I try to avoid is excessive planning on the ground but sometimes its unavoidable. But it's a lot more easier to research on the fly these days with the availability of cheap data and free wifi for your cell phone.
Pre-trip, we also mark up Google Maps with places we want to see or eat at so if we get stuck, we can easily see what's around us. But we're also a sucker for a crowd and need to find out what the buzz is about.
