I've been using Melodyne Editor on some funk rhythm guitar tonight because I wanted to get it SOOPER TIGHT and everything. 
 
So my workflow has been thus (would be interested to know how everyone else works):
 
1) Start with the polyphonic algorithm and use the Correct Pitch macro to correct any tuning/intonation imperfections. It seems to work well right out of the box without any fiddling. 
 
2) Bounce to clip
 
3) Open Melodyne again in percussive mode, and work with the timing of the chords from here. Sometimes using the Quantize Time macro on the whole clip worked well, other times it didn't and I had to quantize on a note by note basis. I'm still struggling with the timing tool because I can't get it to work all the time and it confuses me when I quantize one note and the one next to it shifts. Guess I didn't read the manual hard enough 
 
I don't think I would quantize everything 100% on every guitar part I played, but it suits this track. I'm still confused by a lot of Melodyne but I must say I was very pleased with the results tonight. 

I have not tried using the quantize functions in Melodyne yet. Did you find them easier to use than audio snap?

I did a Nile Rogers-type rhythm track recently and used AudioSnap which worked a treat.  I don't think I'd venture into Melodyne to do it.

I am working on doing something similar (more to clean up my crappy guitar performance more than anything).  I did not use percussive mode, though.  I just use polyphony mode and the timing tool/quantize function.  Given how crappy the track was I had a lot of editing to do (it is a comp'ed track so I am editing each clip individually) and I still have a couple of longer clips to do.  I plan to bounce this to a new track when complete so Melodyne doesn't consume CPU cycles.

I seemed to get better results doing the timing in percussive mode, don't know exactly why. But for the pitch correction, polyphonic was essential of course.

Guitarist came in, did some dubs for about 45 mins.
 
We needed the ending of the song to be sorted properly as he was playing up the scale when he should have been playing down the scale. I didn't say this to him (didn't want to tell him he did it wrong) I just asked if he could play it again a few more times. He stated that he didn't feel like it and left.
 
So I played it for him with Melodyne.
Thanks Melodyne! you have solved my annoying Diva lead guitar player syndrome once and for all :).

I've played around with the timing correction in Melodyne, and found it pretty good.
 
As with a lot of things with melodyne, I have found it is better if you spend a little time working on the detected pitches first.  Working on these, getting them right, and getting better at selecting/de-selecting these, has been the eye opener for me.
 
A little work beforehand makes this program almost miraculous.  Reading the manual and experimenting really helps.  The more you do it, the better/quicker you get.

Hey Sharke!
 
Was reading through this post today and thought I would chime in...... I have also been working on some very rhythmic/funky guitar stuff.  One of the tricks that I find very effective is to use the Attack Speed tool (one of the timing tools).  Depending on what you are trying to accomplish you can really make rhythm guitars funky by moving the attack of the notes "up front".  You should play around with that a little......I found it to be very useful.  It's sort of labor intensive but I like what it does.  Also very useful for metal, or heavy guitar "chunking".  You can get the notes to attack right "up front" on the beat.  I think that I picked this up from Eli's Groove 3 tutorial "Melodyne Explained"......a very good tutorial and well worth the price that I paid for it!

Here's another excerpt from the Celemony site:

Changing the attack speed of notes

The attack speed tool is the second sub-tool of the timing tool.
When you select the attack speed tool, a white dot appears at the start of every note. If you now place the tool anywhere on a note and drag vertically, this dot will move up or down.

If you move it upwards, the attack phase of the note will be compressed and play back faster, but the rest of the note increasingly slowly. The note will therefore have a harder attack; its peak amplitude will be reached more swiftly.

If you move the point downwards, the opposite will occur. The beginning of the note will be stretched – even beyond its visible starting point – and will play back more slowly, the rest, however, increasingly rapidly. Theattack will therefore be softer. Note that the position of the musical start of the note indicated by the orange anchor is not affected by changes in attack speed. The ‘perceived’ start of the note is therefore independent of the attack time, and the same is true of the end of the note.

You can vary the attack speed of notes individually, in order to accentuate them. You can also, however, select and modify the attack speeds of multiple notes simultaneously and thereby alter the timbre of an entire phrase.
If you double-click on a note or one of a selection of notes with the attack speed tool, the corresponding parameter will return to its neutral (central) position. The same result can be achieved by choosing from the Edit menu Reset Specific Edits > Time > Reset Attack Speed.

Time handles and attack speed combined

You can combine the use of time handles with that of the attack speed tool. Altering the attack speed in this case will cause the time handles to move, functioning as a kind of timing master. You can therefore shape the evolution of the note to enhance the phrasing before adjusting the overall timing (so that the note starts faster or more slowly) with the attack speed tool.

Yes I did actually play with the attack tool on this particular part. I actually created a couple of fake "chucka chucka" moments in the part by shortening a chord and copying and pasting it a few times, then used the attack tool to accent certain chuckas. Doesn't sound fake at all!