So why the big fuss with setting a project as a library, when I can remove the checkmark afterwards and the reference is still working? I don't get that - can anyone explain this?
A general rule among programmers is "be liberal in accepting input and be conservative in generating output". In this case, the build system is being liberal and is using your first project as a library despite it not presently being marked as a library.
However:
You cannot set up the initial host->library relationship without "Is Library" checked in Eclipse
You may not be able to set up the initial host->library relationship via
android update lib-project
without the equivalent setting inproject.properties
(it might work -- I just haven't tried it)You should not assume that the liberal interpretation of the input will be reliable over the long haul, as future versions of the tools may have need to check that flag and enforce its setting