What I do for my extension, if it is a change to popup icon or favicon but NOT 48x48 shown in chrome://extensions is a simple reload extension. if you need to view changes to the 48x48 icon, I find you need to fully close and re-open chrome (background apps linger after closing chrome, such as offline mail or calendar or docs)
If you change source code and it isn't noticing the change with a simple refresh, (Maybe in the case of a content script) then I would disable then enable the extension, and if that doesn't work, reload the extension and then close/open chrome.
That should hopefully give you a few things to try, as I fully understand the pain of removing and then adding an extension, and closing and re-opening chrome is not ideal either. For that, I perhaps recommend having two installs of Chrome, either stable and Chrome Canary for development or you could use Chromium for developing
There are lot's of options! but separating developing and normal browsing is a good idea, just don't forget to test on a stable build as well!
For inline css (not added in the document head) closing and re-opening chrome (or removing re-adding the extension) is required. A simple refresh, enable/disable, close/open tab will not suffice.
If you are using Chrome Stable, you won't have access to many features I use as a developer like Chrome Profiles so I would recommend looking into getting either Chromium or Canary for developer purposes, because as a developer you do need to close/re-open the browser a lot (As I find it easier than re-loading an extension)
Addition 11/30/2011
For changing CSS values on an extension tab (options page, anything that appears as a tab), on windows use shift+F5 which clears the cache allowing new CSS to be displayed.
This works in Chrome Canary with the disable cache option in the developer tools checked.
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