here's the best way that i've found to use virtual desktops and expose at the same time...
i like to be able to see my entire itunes window whenever i need to, without waiting for hide/unhide or maximize, etc... so in my second desktop, i have the itunes window, and only the itunes window take up the entire screen.
i have my regular space (first desktop) set up for web browsing, chatting and miscellaneous tasks.
my third desktop i use for all my other work like photoshop, bbedit, ftp, or any other related tasks. i've found that when working with this kind of stuff, i always need to reference something from my browser or need to get to my desktop quickly without all those other windows. the hide all windows expose function just doesn't cut it sometimes.
that's all i do. three desktops is the perfect number.