How does it work in practice? I tried it about a year ago and it still stomped on /usr/local for some packages. If I remember correctly, that was due in part to the package not making it easy to install elsewhere, but Homebrew didn't handle it well.

It always worked fine for me. /usr/local is not even writable by the user I normally use, so it would have caused an error if Homebrew tried writing there - which it didn't. If you're seeing issues when installing to alternate locations, file a bug report.

It definitely shouldn't do that. Most likely that's a fault with the way the formula or Makefile is written, like hardcoding `/usr/local` instead of using $PREFIX.