Generally speaking, we target intersections (as the rules assume, but see below). If a player wants to target an enemy, he can make a ranged touch attack to do so (just like targetting a fireball through an arrow-slit), but -- to make area-of-effect calculation easier -- he loses a small bit of the diameter. (The target's square counts as the first five feet, which means the spellcaster loses five feet of diameter. Note that is you don't do this, the spellcaster essentially gains five feet of diameter.) We're fine with this; we just rationalize it by assuming the target absorbs a little of the energy, kinda like someone dropping on a grenade.
If the RTA misses, the spell continues in a straight line until it impacts something or hits the limit of its range.
Like some folks have mentioned, we don't like "pinpoint targeting," either, but our solution is a bit simpler than using the grenade-like weapon rules. The spellcaster just rolls a d20. On a 9 or higher, ground zero is exactly the intersection chosen. On a 1-8, ground zero is one square off in the indicated direction, where "1" is away from the caster, and counting clockwise. It's fast, and in many cases the roll isn't even necessary; we only use it when the caster is carefully including or excluding targets along the edges of the area of effect.