I just sent this as an email to somebody and thought it would make a good blog post:
If i'm arranging something completely on my own, i save the song on my computer so i can stop and start the track easily. I use Itunes for this. (space bar is stop/start; mouse pointer on song progress bar to pinpoint locate spot you want to work on).
First I'll get a feel for playing the song as if i were just going to sing along (the key, the chords, basic stuff). Do I need to change the tuning of the guitar or use a capo? Adjust as needed.
Then I try to add bass lines and melody and work on various tricks to make stuff come together. Consider what can be strategically left out that the listener will not notice. Can you trick them into thinking they hear something that you're not really playing? (octave displacement, etc)
When I've got something reasonably down, I'll play this version for a long time without listening to the original track. That way, when I *do* go back to listen to the track, the harmonies that I've left out or forgotten or that I'm doing wrong are *immediately* obvious. So I fix that up or add more or make other adjustments.
Then I try to get it all under my fingers, record it, and forget it.
That's pretty much it