Michael Schwern, maintainer of ExtUtils::MakeMaker, also called it broken and said he wanted to fix it at some point.
While these days I just grab my default module template from my code repository, since at least 5.8 you get a sensible default layout with h2xs:
% h2xs --use-new-tests -AXn Foo::Bar::Ni
Defaulting to backwards compatibility with perl 5.8.3
If you intend this module to be compatible with earlier perl versions,
specify a minimum perl version with the -b option.
% ls Foo-Bar-Ni/
Changes Makefile.PL lib
MANIFEST README t
% ls -lR Foo-Bar-Ni/lib
drwxrwxr-x 3 adrianh staff 102 30 Mar 12:52 Foo
drwxrwxr-x 3 adrianh staff 102 30 Mar 12:52 Bar
-rw-rw-r-- 1 adrianh staff 1756 30 Mar 12:52 Ni.pm
Either you have to keep installing it every time you edit the file, or you mess with @INC and edit it within the blib/ directory (where it goes when you do the make) and then copy it back into place when you finish. It's even worse if you have multiple modules in your distribution with different namespaces (i.e. Foo::Something and Bar::Something).
h2xs now puts things in DIST/lib so the old default layout problems you mention are simple to overcome with PERL5LIB and PERL5OPT.