Correct way to use Components?

The only problem with direct entity instantiation - it breaks incremental compilation flows quite easily, unless you religiously put your entity in a separate file from its architectures. With Quartus II Incremental Compilation, you'll be in a world of pain if you don't. When you directly instantiate the entity, the current architecture depends on the entity's source file. If the entity's source file also contains its architectures, then every time you change an architecture, you'll trigger recompilation of the parent. If you change a lower-level architecture, you can easily force re-compilation of all parent partitions.