My two cents on the matter:
I think in general, yes it is good etiquette as a designer to give the user
control over opening new windows, especially since new windows opened by the
site may be treated as popups by the clients browser.
I'm sympathetic to Hugh's approach as I prefer to open links to external web
sites in a new window and I do so when opening such links for many of the
reasons Hugh has cited. However, I don't assume my preference will be
everyones preference and since the client has the option to choose, in most
cases I defer to my client.
Having said that, I do think it's important to recall that design will
sometimes call for breaches of this etiquette. For example, when discussing
how we can make page editing easier for the neophyte, the idea of having a
link to some kind of wiki markup quick reference sheet on the Edit pages
that opens in a new window, allowing the user to view the reference AND edit
their page, was kicked around and frankly I like it. Perhaps there is a
better way and someone may enlighten me, but as it stands I see this as an
instance where design trumps "etiquette".