I find the best way is to insert each new reference into the bibliography when I first need it. Subsequently, I cut and paste footnote references from the bibliography. That way, when the thesis is finished, the bibliography will also be finished, eliminating what could be a frantic last-minute job. Leaving it to the last minute is a bad idea but not a near fatal one as it was in the days before libraries could be accessed over the internet and you could correct the bibliography without driving all over town.
Does anyone read the bibliography? Not really, no. I mine bibliographies and footnotes for interesting sources. But potentially it could be one of the only people who count: markers. Even they probably won't read it but there are some caveats here.
Part of the exercise is demonstrating a good grasp of the literature of the field. Therefore, they will look for these works. It's a very good idea to make it as easy as possible to find them. File things under the well-known author if there are many. I had a problem last time with a book allegedly missing from the bibliography. It was in fact there but the marker forgot who wrote it and then couldn't find it. This time the Official Histories are off by themselves so they can be found at a glance.
I only list books that I actually cite in the text, although occasionally the only reference may get the chop during the editing phase. This is mainly because I have enough books already. Moreover, you have to actually read the books you cite. A drag, I know, especially when only one part is truly relevant but otherwise you run the risk of stuff like ----, which the candidate claims to have read, clearly states that yadda yadda
Related to the bibliography is the footnotes. I keep them close to the text concerned so that they don't drift away during editing. People always seem to want to know where the obscure ones come from. Poor footnoting only gets you in trouble. The downside of this is that I generate two to four per page, so a forty page chapter generates over 100 footnotes. Therefore, a Word Processor that doesn't lose them is a must.