I understand that a common practise is to place shared libraries a program links to inside the application bundle itself in mac os x. This is makes for much easier installs since users don't need to go and download and install SDL themselves fo example.

This is similar to just static linking in a sense but it manages to avoid the GPL issues with libraries like SDL.

Question: How do you configure an Xcode project to do this?? Has anybody else tried to do this. I'm sure there must be a simple and proper way of doing this, but not sure what it is yet.

Any ideas?

I'm not sure about all the issues involved with SDL but http://cocoadevcentral.com/articles/000042.php might be of interest to you. There has been some discussion here about this already. I wish I could remember where/what/when.

You must add a copy files phase to your xcode target, set it to "Framework", and place the framework/libs in it.

Yeah, you can just use XCode to package the Framework inside the .app package.