I always steep in the volume of water I need for my boil (for a 5 gallon final volume extract brew that would be 6 gallons, which raise to 6.5 total volume with extracts added, boil down to 5.5 for final yield of 5)... I have never noticed any off flavors resulting from this. I don't steep long, maybe 20 minutes max.
"Why did you.... what was the point of... how drunk were you when you decided this was a good idea?" - DMartin