I've got to try this.
What do you do about areas that should only be revealed to the players as they get to them? Do you just cover them up with sheets of paper?
What about transitional events, when the players have real time encounters that cross areas?
I use the 2'x3' pad of 1" grid paper as well, and I will swear by it. One pad, which I paid $9.99 (Canadian dollars) for at Staples, has got my group through more three whole published adventures so far. The advantage is that you can make maps highly customized (to whatever greater or lesser extent that you desire) beforehand, so switching areas is a simple matter of laying out the next map. I draw the maps with a 12-color pack of Papermate permanent markers that I picked up pretty cheap, but I'm sure any will do. (Get extra black!)
As for revealing areas, I recommend drawing the whole thing out, then using newspaper to cover the other areas. (Be sure to use parts of the newspaper that your players won't find interesting, if they're the distractable type!) I used to draw the rooms separately then stick them down with double-sided tape as they were revealed, but this added a fair bit to my workload, and it's tough to lay the sheets down to make the grid match in the middle of a session. I still use this technique for hidden rooms and terrain that changes, for example.
Some other tips I discovered: Before you start drawing, tear off the grid page you're going to use, then flip over the pad and use the cardboard backing as a mat. This'll keep you from accidentally bleeding colour through five extra pages, and well as protect against staining the table while you draw. Also, use a ruler for straight lines. Since you're preparing the map ahead of time, you might as well make your drawing look half-decent.

Finally, if you want to make sure different maps you draw will match up, be aware of the exact size of the grid you're using. For example, even though I use it as a 1" grid, in actuality the paper I've got is 1" x 7/8", which means that if I use two pieces of that grid paper together, perpendicular to one another, the grid won't match up. (If you're a perfectionist like me, this will quickly bug the hell out of you, the first time you experience it.)
Anyway, I definitely recommend drawing maps ahead of time! Like Rel said, it's the best money you'll ever spend for your D&D game!