The top-down set-in sleeve in knitting is a brilliant technique. I've used it several times now, tweaking as I went along. Here are my notes.
Credits
First the credits: I learned about the top-down set in sleeve from Barbara Walker's book Knitting from the top. I think she's the one that invented this technique in the first place. Then I studied Tasha Moss's tutorial which explains the whole process very clearly. Lastly, I purchased Andi Satterlund's e-book Guide to Seamless Set-in Sleeves Sweaters. The e-book includes the pattern for the Plain Jane cardi, which is knit top-down. I knit it bottom-up (incorporating the lovely pockets from her Armande pattern).
Number of pick ups
I do what Andi Satterlund does: pick up a stitch for the sleeve in every other row of the armhole - except in the underarm-straight bit, there obviously I pick up one in every stitch. Amazingly, this comes out at more or less the exact number of stitches I'd want for sleeve width at underarm in the first place. This might not work for other gauges, but I generally knit sweaters on 4-5mm needles, with a gauge of around 17x29 per 10cm and so far it works beautifully.
Number of short rows
Generally, it's advised to start the short rows at one/third of the number of stitches from top of shoulder to underarm (excluding the underarm-straight stitches) and do them one/third of the way down. However, I like the sleeves more with a few exra short rows. I start them at 3 or 4 stitches from mid-shoulder and continue doing them right up to 2 or 3 cm from the underarm-straight.
Where to start knitting the sleeve
All instructions tell you to start picking up at the mid-point underarm. When all your sleeve stitches are picked up, you start knitting. So you knit half a round, to the mid-shoulder point, plus the stitches upto the first wrap & turn point This means one half of the W&T's is made directly on a picked up stitch, the other half is made on a stitch that's already been knit once.
That difference shows! The W&T's on the pick up row are much less visible. To get all W&T's on the pick up row, simply start picking up at the top of the shoulder.
When all the short rows are done, attach new yarn and the mid-underarm point, and continue knitting the sleeve from there.
By the way: Catherine Lowe recommends picking up stitches with a smaller needle size. Good idea :).