Hey, great questions.
They deserve a proper explanation on my blog but I'll answer them briefly here:
1. "APEBuild": yes. In fact, when I designed the APE i thought of this use case; this feature was a corolary of the way I designed the tool in order to test import/write units before promoting them to the editor. As a matter of fact, project files contain all needed info to build assets. So, when you call the APEBuild you eiither indicate whether to build the whole solution or specific projects.
2. Repository: in the way the APE works there is no need to watch files, since compilation/build actions in the editor need user interaction (press a button, etc.) and it handles raw files as opposed to source files. Let me explain it a bit better: when you add a file, the editor copies the source file to the solution's repository and add a raw file in the solution tree. Thus, as long as you change the source file in the repository, next time you build assets this updated source file will be loaded, processed, and so on so forth to obtain the asset file. So, if you have say a mono sound.wav file on the repostirory and then you manually replace it with a stereo sound.wav file, the later kicks in for next builds.
3. Processing: the APE will not replace production tools like Photoshop, Sound Forge, and so on so forth. So you will need to create your source files there: jpegs, wavs, mov, etc. What the APE provides is a way for you to indicate how to convert them to the file format you need for your games. In case the built-in import/write units or the ones provided later on by me and or any other user are not useful to you, then you can implement your own with full control over them. So, if you want to implement a processor that converts WAVs into OGGs, you can go ahead and do it with ease. What about resizing a texture? Sure. What else? Everything you can imagine of that can be achieved by setting parameters on a property grid. For example, for the case of XNA'ers, in part 4 of the series I show a processor with many features that pre-multiply alpha, resize textures, changed formats and so on. To sum up, to create source files use production tools, to convert them to game assets, use the APE.
Thanks for your smart questions. Hope you like the answers. More in my blog soon ...