I know there are other questions regarding this subject, and I've looked at this question, but I'd like to see a little bit more discussion and information on both sides of this - is it a better practice to add a project to a solution and reference the project, or to add a reference to the .dll?
Well, project references are helpful when you are building and testing in both debug and release mode. If you directly add a DLL then you are locked into whatever that particular DLL was built as. The project reference allows this to be a build time decision.
It's not much of a choice. If you have a solution with both projects then there's no point in not using a project reference. If your solution doesn't have the project then you have to use an assembly reference.
So the real question should probably be: do I create a solution with both projects? Yes, as long as the project is still in the debug stage and liable to require bug fixes.
If you only have the dll then your stuck with a dll reference (obviously).
If you have the source then it's usually better to use a project reference. There might be cases where you have a utility library that's never going to change, but if there's the slightest chance of you needing a bug fix then having a project reference is going to make debugging a lot easier.