In 2007 you could always alter the Master page, but any pages user administration pages would still keep the old standard page. Therefore users often saw 2 master pages. You could change this either by backing of the 12 hive and altering it, which might break given a future upgrade, or changing the mapping of the virtual folder in IIS to another virtual library, which meant you had to keep all you had two copies of the same code for a single master page.
I once had to deploy a solution this way and it was very tricky developing. Even worse was debugging, with 2 versions of the same styling in 2 different spots in was very complex to go from an error in the styling on page back to the virtual library or master page. The virtual library mapped in IIS had to be edited by a text editor!!! Slow painful work.
Now extending your site master pages to your user pages even those under the _layout directory is just a general setting in new Web Application. When you create a new web application SP 2010 asks you if it should extend the Master page to the _Layouts Pages, by clicking yes you ensure a consistent look a feel to all the pages your main users will ever see.