I know that Dungeons and Dragons 3.5 is a pretty lousy stealth simulator--which is probably why I've not seen a lot of folks try to play characters that hide--, but I want to clarify the hiding rules as they're written because a player at my table soon might be running a character who hides a lot.
Is the summary below accurate?
This summary references the skill Hide (PH 76), concealment (PH 152-3) and cover (PH 150-2). This assumes the hiding place mentioned in the skill Hide is a location that grants concealment, cover, or both.
Determine if the hider is being observed
If the hider is unobserved...
Before the hider can make a Hide skill check, the hider must get to a hiding place or by other means acquire either concealment, cover, or both. Then, when an observer later has line of sight to the hider, make an opposed skill check, the hider's Hide skill versus that observer's Spot skill. If the hider wins, the hider is hidden from that observer. If that observer wins, the hider is not hidden from that observer.
If the hider is observed...
The hider must first create a diversion to hide.
If the hider must create a diversion in order to hide, the hider takes a standard action that doesn't provoke attacks of opportunity to create that diversion to hide.
Make an opposed skill check, the hider's Bluff skill versus each observer's Sense Motive skill. If...
- the hider wins, the hider diverts the observer, and can move up to 1 ft. per rank the hider has in the Hide skill as part of the standard action.
- the observer wins, the hider fails to divert the observer and can't attempt to hide from that observer. The hider can still move up to 1 ft. per rank the hider has in the Hide skill as part of the standard action.
If there is no hiding place within 1 ft. per rank the hider has in the Hide skill, the hider can't hide from any observers.
If the hider reaches a hiding place, the hider can attempt to hide in the hiding place from diverted observers.
Make an opposed skill check, the hider's Hide skill at a -10 penalty versus each diverted observer's Spot skill. If...
- the hider wins the hider is hidden versus that diverted observer.
- the observer wins the hider is not hidden versus that diverted observer.
Why This Matters, and Why I Want Confirmation
By this reading of the skill, a hider with no Hide skill-related special abilities only ever uses his full bonus to the skill Hide when unobserved. Thus most of the time the hider's suffering a -10 penalty to Hide skill checks.
Further, the skill Bluff is vital for using the skill Hide as the game never quantifies any other method of momentarily distracting observers. Even the seemingly aptly named feat Chord of Distraction (CS 75), 1st-level Desert Wind martial maneuver distracting ember [boost] (ToB 52), 1st-level Sor/Wiz spell distract assailant [ench] (CAd 146), and 4th-level ranger alternative class feature distracting attack (PH2 55) don't create momentary distractions for the purposes of making Hide skill checks.
Finally, both rangers and monks have the skill Hide as a class skill, but neither has the skill Bluff as a class skill, making hiding a challenging tactic for monks throughout their careers and for rangers until level 17 when the need for Bluff skill checks to create a distraction is finally obviated by their hide in plain sight ability.