Almost everyone will say to start with AT LEAST 2.5 gallons in your kettle and add the rest later. Or if you have a big enough pot do the entire 5 gallons. Any more I start with 2 gallons of spring water, steep my grains, add my extract, boil, add the hops, then at the end of the boil I take off the heat and add a gallon of COLD water, then use a wort chiller to bring down to 100 degrees or less. Once I chill it down that low, I add another gallon of COLD water to the fermentor and then add the wort to the primary. I then top off with COLD water to bring it to 5 gallons. At this point my wort is usually around 70 degrees or so which is usually about the perfect temperature to pitch your yeast.
The reason I do this is to bring the wort down to temp as fast as possible. My wort chiller is just running cold tap water through it so it doesn't cool it fast....at least not as fast as a gallon of 37 degree water.
People will say that you have to adjust your hops amount to the amount of water, but using an extract kit I have never had an issue with how the beer turns out. I have done 2.5 gallon boils and 5 gallon boils. It always turns out that it takes so long to cool down a full 5 gallons over half that amount.
