website or Web site

I have seen the word website written in many ways; website, web site, Web site. The last in the list is to me the most awkward way of writing it out, but the AP style book says that it is correct, is in fact the only way to write it properly, since the word web is an abbreviation for World Wide Web. Still, a lot of newspapers, like the New York Times, for example, do not write it this way. I understand this could just be the preference of the paper, but what do you think is best? What does Chicago say about web addresses? AP says the "http://" should always be included, but this looks so messy.
Also, how much fact-checking are copy editors expected to do? Names, dates, but what else? Where do you draw the line and query the author for more information?

Hyperlinks and Acronyms

Microsoft Word always makes e-mail addresses and websites as hyperlinks. Is it only appropriate to have e-mail addresses and websites as a hyperlinks on more web-based texts? (Is the business letter for Midterm 2 meant to be sent on paper or through e-mail?)

Also, is it appropriate to use acronyms, such as MS, when the acronyms are commonly used in society? Or should we state what the acronym stands for?