A lot been given here already... I use Autopano Pro to create my panoramas, and I find the control point/alignment feature to be excellent - even with bracketed images, it lines things up very nicely. Using a tripod/panorama head is obviously the best, but as mentioned, it depends on how far away your foreground is as parallax is more of a problem with close objects. I often use the index finger of my left hand as a rotational point, balancing the lens on my finger and rotating around that. I also shoot vertical panoramas by placing my finger on the side of the lens and rotating up and down around that point. Manual exposure is generally best, but depending on the lighting/scope of your image and the dynamic range of the camera you're using, Aperture priority can work. Shutter priority changes the aperture, which of course changes DOF, but again, it depends on how far away your foreground is. One thing not mentioned is not to use a polarizing filter as you'll get some pretty weird transitions as you rotate the camera.
Mike.
P.S. While panos are mostly used for landscapes, you can use a moderate telephoto to create shallow DOF 'wide-angle' portraits using something that's come to be called the 'Brenizer method'.