I don't think there is an "official" recommended path. What i usually like to do is the following:
configure --prefix=/usr/local/nginx-1.2.7
or whatever the version number is
ln -s /usr/local/nginx-1.2.7 /usr/local/nginx
To link to the currently active version
Then i always start it using the path without version /usr/local/nginx
and write the init scripts accordingly. This makes updating it much easier by first installing the newer version into another path and later just changing the link:
configure --prefix=/usr/local/nginx-1.2.8
ln -fs /usr/local/nginx-1.2.8 /usr/local/nginx
change the link and then restart
Furthermore it makes it easy to switch back if you discover that there is a problem with the newer version.
For temporary things like the cache, if memory allows, i create a tmpfs
partition and mount it in something like /var/nginx
.