I think its important to separate some issues that we're talking about here.
One of those issues is gapless playback - how MC should support it, how it should be handled when copying to iTunes.
But that's a distinct issue from the handling of cue-linked files. Whether it's a good idea or not to have cue-linked files for reasons other than gapless playback, the fact is they exist. Its a fait accompli. And the question is how MC should handle them.
I have no position on the APL-file vs. cue file vs. library issue (although I'm inclined to having MC update the cue files, for consistency of interface). It really doesn't matter much. What DOES matter is that one part of MC (tag updating) shouldn't be confused about what the other part of MC (cue importing) is doing.
The other part of cue handling (that I'm aware of at the moment) is copying files to an iPod.
Let's put the gapless issue to the side for the minute - iPod gapless support is limited, so it really is a side issue.
I think its pretty obvious how MC should handle this: The songs should be extracted and copied over separately ("convert if necessary"). If ALL the songs in the cue are set to transfer then, perhaps, the behavior should be different.
But at the moment, MC simply crunches when it finds a song from a cue in the synch list. And that's not OK.