Microsoft Sandcastle is definitely still the right way to go. The main alternative (that offers anything close to the feature set of Sandcastle) is NDoc, but the last release of that is much older, being in January 2005!
Although it is still technically in (late) pre-release stage, it is in fact quite a stable tool. The small number of bugs have been fixed by patches, available on CodePlex as part of the Sandcastle Styles project. There's also a superb GUI for it, namely Sandcastle Help File Builder.
I am not sure about the future development of Sandcastle however. I believe it is likely Microsoft will continue work/expansion on it at some point, though there doesn't seem to be any news of when. It is certainly the only decent tool for creating proper documentation for a .NET library or application, at the moment. Of course you can often get away using more "light-weight" tools for small projects/help files. The main alternatives that I've noticed are both commercial and inferior to Sandcastle.
Generating documentation by hand/using custom automation is probably feasible in certain cases, but only for small projects (that are not likely to expand.)