From an architectural standpoint and my personal experience, colours and linetypes should be by layer.
At my place of work we have a code study drawing where the fire resistance rating (FRR) for walls is shown. We like to xref the plans into the code study drawing and switch all the floor plan drawing layers to a colour that prints in a lighter tone. That way the FRR stands out more. Also in other drawings we use the same layer to show different things. For example the bulkhead layer on the floor plan is a hidden line to shown things that happen above. On the reflective ceiling plan (RCP) the bulkhead layer (which is part of the floor plan drawing and xrefed into RCP) is set to a differnet colour and a different linetype, thereby showing the ceiling layout.
When a colour or line type is set to a different thing other then the layer its on, it is impossible to do the things I mentioned above. Also its harder to tell if the object is on the correct layer or not.
We also convert a lot of other disciplines (ie. Mechanical, Electrical, Civil) to show some of the items on our drawings and its much easier to rename, change colour and linetype by layer then it is to isolate a change to layer.
Well that’s my argument for why the colour and linetype should be by layer. After all you can have an endless number of layers and autocad keeps adding tools that make it easier to handle and manipulate layers .