Making Lego Instructions

Things to install (mac)

Lego Digital Designer (lego.com)
Bricksmith 3.0 "complete"
LPub
LDView
LDGLite
LDraw parts library (sometimes included with Bricksmith)
parts.lst file (necessary for Mac version)

Once all of the above function properly, you're ready to go.

The procedure

1. LDD

Use LDD to build your model
- Use http://bricklink.com catalog search to find part numbers if needed
- If you can't find a part, think of a set that had the part and use that to get the part number
- Even though LDD doesn't show you the Lego piece numbers, you can search on them accurately
Save often
File > Export Model, Format: "LDraw-Files (*.ldr)"

2. Bricksmith

Use Bricksmith to open the LDR file exported from the above step.
Look for missing pieces and replace them
Look for missing and inaccurate colors and fix them
menu: (View)->(Step Display)
In the bottom of the "File Contents" pane, click on the footprints to add a bunch build steps
use the "step" selector in the upper right to view different steps
In the "File Contents" pane, drag pieces to fit into the desired steps
If you have any parts that need to be callouts (those inset bits in the instructions that show you how to assemble a small bit) create more submodels, and move them into there, then add those references into your model.
Save often

3. LPub

Use LPub to open the LDR file saved from the above step.
Configuration - Page Setup to adjust page size and shape
pick the other configuration panels and change stuff (see below)
If desired, right click on step 1 (or any step) and "Add Next Step" to add it to the current page
"Display as Rows/Columns" to adjust layout
"Add Divider After Step" to adjust layout
Go to last page, Edit, Append page
go to the new last page, "Add Bill Of Materials"
Click the PDF logo, or "Print to file" to export a document

Now, that all looks nice, but here's a better way

(File) Export as PNG images
Save them all to some location
Select all and open them into Preview (on Mac, obviously)
(File) Print
[Show Details]
1. Landscape Mode
2. Orientation: Landscape
Preview:
- [ ] Auto Rotate
- Scale to Fit, Print Entire Image
Layout:
- Pages per Sheet: 6
- Layout Direction (down on left col, then down on right col)
[PDF] - Save as PDF...
Load that PDF back into Preview, and shove on a cover page if you want.

3a. Some good LPub settings

LPub has a lot of configurability. There are some settings that you can do to make it appear closer to Lego's official instructions. Adjusting fonts alone goes a long way to get you there. As far as I can tell, the closest modern fonts are: (referencing with a 4"x4" step display size)

Step Parts count and BOM font: Helvetica Light 18
Step number font: Helvetica Bold 48 (64 if you want BIG numbers)
Parts List Border: Round Corners, Margins 0.15 0.15
Parts per step location: (Page) -[inner] Top/Left
- these are setup such that you pick the point of reference ("Page" in the above), and then where "this thing" goes with relation to that point of reference. ("Top/Left" means it is anchored to the top left of the screen... "Top:Left" means it is on the top of it, over to the left. Confusing
Step Number Location: (Parts List) - [outer] Bottom:Left

Here's all of the above: (PLI is the parts list per step)

0 modelname
0 Name: 
0 Author: LEGO Digital Designer 4.3

Then right after that, paste this in:

0 Layout tweaks by Scott Lawrence
0 !LPUB PAGE DISPLAY_PAGE_NUMBER GLOBAL FALSE
0 !LPUB PAGE SIZE GLOBAL 4.0000 4.0000
0 !LPUB PLI BACKGROUND COLOR "#95eae8"
0 !LPUB PLI BORDER ROUND Black 0.03125 15 MARGINS 0.15 0.15
0 !LPUB PLI PLACEMENT TOP_LEFT PAGE INSIDE
0 !LPUB PLI INSTANCE_COUNT FONT "Helvetica,18,-1,5,50,0,0,0,0,0"
0 !LPUB STEP_NUMBER PLACEMENT BOTTOM LEFT PLI OUTSIDE 0.0 0.15
0 !LPUB STEP_NUMBER FONT GLOBAL "Helvetica,48,-1,5,75,0,0,0,0,0"
0 !LPUB MULTI_STEP PLI MARGINS GLOBAL 0.1500 0.1500
0 !LPUB MULTI_STEP ASSEM MARGINS GLOBAL 0.2500 0.2500
0 !LPUB BOM BORDER GLOBAL ROUND Black 0.03125 15 MARGINS 0.15 0.15
0 !LPUB BOM BACKGROUND GLOBAL COLOR "#b5ffb3"

And it should end with: