In the PHB it says that hiding takes no action and usually is performed as part of a move action. However if I'm playing a rogue/ranger or rogue/shadowdancer and I have the hide in plain sight ability what are the limitations as to what that can be combined with? For example if I'm mid-battle with shadows within 10 ft. can I hide and then full attack dealing sneak attack damage? Or would hiding be a move action and I would only be able to attack once? If I am able to full attack after hiding would I have to hide after each attack or would one in the beginning be sufficient?
No, you don't need to spend a move action to hide, and you can hide as part of a full attack.
First. The rules say movement is the usual method of activation:
But that's not a necessity. That's because we also have the following rule:
So, hide while attacking all you want, you just take a teensy tiny -20 penalty on your check.
As for Hide in Plain Sight and actions, all HiPS does is change the conditions under which you can hide. While Supernatural abilities are activated as a standard action unless otherwise noted (and HiPS is a Supernatural ability), HiPS is generally understood to be a "passive" modification to the character's abilities, not requiring specific activation. I'd compare it to the Paladin's Divine Grace when it comes to this.
TL;DR version: HiPS inherits the actions from normal hiding, and hiding can be done as part of the action of attacking.
Hiding Is Only Accomplished As Part Of Another Action
There are rules for hiding while moving, and rules for hiding while attacking, and in both cases the hiding takes place simultaneously to the other action. Whether that means that you hide before you attack when you take both actions seems to be a matter left to DM. I would personally rule that the order is chosen by the player, so you could certainly move while attacking.
Hide In Plain Sight is a Supernatural Ability, but not a standard action
Remember that Supernatural Abilities only require a standard action "unless otherwise noted." (SRD: Special Abilities). Since Hide In Plain Sight simply modifies the ways you can use the Hide skill, you would use the same action economy as you would normally with that skill.
"Unable To React"
The SRD for 3.5 only says a character is denied their Dexterity bonus to AC if they "cant react to a blow." (SRD: Armor Class). Now nowhere in the SRD or PHB does it seem to say whether you can react or not attacks from hidden characters, but as a DM the RAI answers to me seems obvious; if the target cannot see you and therefore cannot target you, he certainly cannot react to your attacks. This holds true for invisible characters, and even invisible characters have to roll Hide checks: "If you are invisible, you gain a +40 bonus on Hide checks if you are immobile, or a +20 bonus on Hide checks if you’re moving." (SRD: Hide).
But as the line on sniping seems to imply, attacking can blow your cover. You can hide while attacking, attack once with Sneak Attack damage, then use a move action to attempt to hide again, as per the rules for sniping (which in the case of the Shadowdancer or Ranger I'd rule also applies to melee attacks also). If you Full Attack, I'd rule the Sneak Attack only applies to the first attack, though.
Here's How to Hide in Dungeons and Dragons 3.5, but to address specifics, here are
Questions & Answers
To answer your main question, it is correct that Hiding is part of a movement action, and this applies for Hide in Plain Sight too.
It must be said that you could however decide to take a -20 penalty and try to hide while attacking (as stated in @Ernir 's answer), even if I would not advise it at lower levels.
You still need some sort of cover or concealment to hide (it may vary: Rangers can use any sort of natural terrain; ShadowDancers and Assassins can use any shadow but theirs, and so on), but being observed by your opponent is not a problem anymore.
Given what I've said above, if you are hiding you cannot Full Attack your opponent: hiding and attacking the following round could be a more desirable option (depending on how many attacks can you land with your Full Attack).
If you succeed in Hiding and can Sneak Attack, every attack in your Full Attack will be a Sneak Attack! From http://www.wizards.com/default.asp?x=dnd/rg/20040302a :