Brooks has a fine discussion of the topic in The Mythical Man-Month. He makes a good case for having a traditional manager as assistant to the lead developer, with responsibility for budget tending, office politics, gossip, lies, damn lies, and other business activities that no developer wants to indulge in. The assistant's main job is to keep the developer happy.

Management isn't just there to keep the developers happy, although IMNSHO that's one of a manager's primary responsibilities. Management is also there to make sure that the developers are solving the right problems, and that they're using their time properly. It's not terribly useful for a development team to solve a really cool problem in general when only a specific instance is relevant to the company. Developers can get into a "forest for the trees" situation -- too close to the problem to really be able to tell what the company needs.