In my experience I get the smoothest results when the shots are 1 or 1 1/3 stops apart, but I get quite good results up to 2 stops apart. As far as how many shots you need in the bracket, you can do a test in one of two ways (at least). Using spot metering measure the brightest part of the scene and the darkest part of the scene. That will tell you the dynamic range of the scene, and you can then set the number of shots and the required distance between them. A less elegant way is to shoot to get details in the shadows, another to get detail in the highlights, and count the stops between the two exposure; then, choose the number of shots you want and the distance between shots.
Another part of the technique would be to choose your best "normal" exposure, and if that requires exposure compensation, use that setting (with the compensation) as your middle exposure in the sequence.
Both the NIK HDR program and Photomatix are now quite adept at merging the images with as few artifacts as possible, so I can even get a sequence of 3 or 5 images to work well in most situations when I have to hand-hold a sequence.