Anaerobic digestion does not consume or reduce the nutrient content of manure and organic products. On the contrary, it concentrates it while killing pathogenic organisms present in the manure. Normally, feedlot manure that is used for fertiliser must be stabilised, or aerobically composted, to kill off pathogenic organisms. Open or semi enclosed manure ponds are aerated to break down organic material, yeilding CO2 while leaving nutrients in the manure which is then spread as fertiliser. A big downside of this technique is that odours are pretty substantial and offensive. Aeration is also imperfect and these ponds can produce significant amounts of free methane to contributing to atmosperic GHGs. Solving odour problems is in itself a strong enough argument for livestok operators to move to anaerobic digestion. This goes a long way to addressing NIMBY concerns by neighbours and nearby towns. Anaerobic digestion achieves manure better, faster manure treatment, minimises and contains odours while recovering very useable biogas. At the very least this gas can be flared. A better scenario is that it is used to power and heat the digestor system at least. Gas can be rather cheaply stored (compressors can run on biogas) for use when a farmer needs heat or generator fuel. The material product of digestion, often called "liquor" is a highly potent fertiliser. It requires less storage space, is more easily transported, more easily spread on fields and has very low probability of carrying infectious bacteria/amoebi. Farm based biogas recovery is a local solution for a local problem. It is not for every context and not always advantageous. Chinese farmers have long used a very simple approach with human and animal wastes to produce cooking gas. This practice is spreading as energy prices and technological knowhow increases. To make generalised statements whether biogas recovery from farm wastes is good or bad does . Context is king when discussing renewable energy systems so we should never rush to either condemn or endorse a particular technique. Biogas recovery is no exception.
Dinaz - You are right that context is important. But I think it's more a matter of what your starting assumptions are:

A. There needs to be large scale livestock farms so we might as well collect the waste and convert it to local energy.

OR

B. The best model is sustainable organic agriculture where crops and livestock co-exist or livestock is raised free range.

I prefer B. In that context, manure is not concentrated enough to make it's collection worthwhile.

The real world situation is not A or B. Its AAA and AAa and Aaa and Aab and so on. Use this technology on every level where it makes sense.

My advice is to dont bother if A or B is best but make the equipment movable and recycleable if the site it was used on ends up being outcompeted.

Sure Magnus, I know there's a huge grey area. As John Darnell (R. Barlett's advisor) said in his lecture at the NYC PO Conference in Oct. "We need to envision the world that is sustainable and work our way backward on how we get there." I don't think large scale livestock farms are part of that sustainable future so efforts to prop it up seem like a waste of time and energy to me. It's really the idea of subsidizing them that gets to me.
I don't think large scale livestock farms are part of that sustainable future so efforts to prop it up seem like a waste of time and energy to me.

I suspect you are right.  The two most petroleum-dependent industries are transportation and agriculture.  People seem willing to accept that  transportation is going to have to change fundamentally, but not many think the same about agriculture.  

Or maybe it's

C. The best model is to size farms such that energy from manure and other byproducts can be captured and the nutrients recycled.  The actual division between grazing/feeding hay in barns is part of the determination of optimum size.

I'm from Alberta where we have far more cattle than people and a good portion of these cattle are partially if not fully housed for a portion of winter. When combined with some sort of stationary winter feeding lot, collection of manure is not only useful - it is required. Manure is best when deposited on the field, I do not dispute this. What I have a problem with is the idea that AD should somehow be ignored as an energy option because it makes industrial farming more economical and viable. Is it then better to allow slaughterhouse and feedlot operators to NOT better use the masses of manure and entrails they have? Is it better for them to let it settle in open ponds, burp methane into the atmosphere and offend people for fifty miles in every direction? How about spreading it on fields after insuficient aeration treatment? I'm not so sure. Call it green, call it brown. Either way, AD is an effective means of extracting highly useable gas from an organic wastestream. I'm convinced that it is as useful at small scales as it is for large scales. The Chinese peasant will back me up. Even when it helps big agribusiness conglomerates continue to produce cheap, abundant, if somewhat morally and ecologically disruptive food to fill our fat bellies. Panning AD as an energy system because we dissaprove of a particular industries practices isn't particularly constructive. Industries will change as energy availability evolves - but AD will remain possible, feasible and desirable. Instead of worrying that AD will make the bad guys rich, why not support its development as we would a more efficient car. When a higher standard in CAFE is announced are we to complain that this will just perpetuate the problem?
I agree that AD may have a place, particularly in colder climates, but it should not be subsidized over wind and solar which are more sustainable. And it should not be touted as something that will supply power beyond the farm. At best this should be viewed as a slight improvement in efficiency on these farms (sort of like a hybrid recapturing lost energy in braking), not as a primary source of power. Overall though cutting the amount of meat consumption slightly would be a better use of scarce resources. I think the market will start to incentivize this, but not if economic subsidies skew this incentive.
dinaz wrote: "Anaerobic digestion does not consume or reduce the nutrient content of manure and organic products. On the contrary, it concentrates it while killing pathogenic organisms present in the manure."

I beg to differ a bit. The die-off of pathogenic organisms depends on the HRT (hyrdraulic retention time) and temperature of digester operation. The most common are plug flow mesophilic systems operating at about 100F and pathogen reduction is only several logs. The thermophilic systems, operating at 140F or higher, essentially produce a sterile product.

With respect to reduction of nutrient content, the most important impact may be the potential reduction of soil carbon, which has an adverse impact on both soil productivity and atmospheric CO2 level. The impact on soil health and productivity is likely a major weak point of all non-food energy production schemes; some refer to these as "dirt burning".

Take a look at:

Building Soils for Better Crops http://www.sare.org/publications/soils.htm (in print and on-line)

The Soil Biology Primer http://soils.usda.gov/sqi/concepts/soil_biology/index.html

Glomalin: Hiding Place for a Third of the World's Stored Soil Carbon
http://www.ars.usda.gov/is/AR/archive/sep02/soil0902.htm

Soil Carbon Center
http://soilcarboncenter.k-state.edu/

Which one of those references has test results for soil carbon in those soils fertilized with raw manure vs. liquid digester effluent?  That is what we are debating, after all.
None here or elsewhere that I am aware of (with the caveat that I'm not a soil scientist), which is part of my point. Most of the work in this area is looking at the effects on constituents such as NPK. The relationships between soil arbuscular mycorrhizal fungi, glomalin, SOM (Soil Organic Matter), soil microbial diversity and soil management (tillage practices, fertilizer application, crop residues) are very complex and dynamic. This  is a very active research area. Glomalin was only recognized in the late 90's and it appears that there is still considerable controversy on the best techniques to measure SOM. With all the negative connotations of dirt, soil is a very complex but critical environment. Thus we are again perturbing a very complex system, potentially adversely, that we don't yet understand (IMO) sufficiently. Hence the word "may" in my original comment.

Several blogs that cover topics in this area are Muck and Mystery  http://www.garyjones.org/mt/ and Transect Points http://transectpoints.blogspot.com/