dialogue moves the story along...or just confuses the reader

Imagine enjoying a book.  The characters are dynamic, the plot is interesting, and you can't wait to find out what happens next.  Then they start to talk.  You're following along, getting what they're saying...then suddenly you're lost.  Who said what?  What are they talking about?  Why are they talking about this?  It makes no sense!!  I hate that!  It really bugs me when I have to go backwards to count the lines to figure out who said what.  Don't lie, you've been there.  

Personally, I really like dialogue.  I think I'm a better dialoguer than a narrative descriptor.  A good conversation will flow easily, seem realistic, and will move plot and offer character growth.  I'm still developing in this area, but I do think it's one of my strengths.  

The etiquette for grammar with dialogue is a little hazy depending on who you're talking to.  Some people swear by 'said', 'reply', 'questioned', etc...while others think these descriptors are obsolete and annoying to read.  I agree, they can be annoying when the same one is used over and over and over again.  That's probably my one problem with the Harry Potter novels: J.K. Rowling loves to use the word said.  

I like to add physical description or actions to my dialogue.  I think it's easier for the reader to picture what's going on.  

What are your thoughts on these and other dialogue issues?