I changed the option in the Joomla configuration section to show all errors (E_ALL) and my component is basically unusable.
As an example, in a view (editapp) I have a template, default.php, which contains things like:
<input class="text_area" type="text" name="application_name" id="application_name" size="50" maxlength="250" value="<?php echo $item->application_name" ?> />
Now because of $item->application_name when I run this the first time (a new record), there will be notice errors everywhere Trying to get property of non-object
This is because the same template is used for saving and editing. I followed tutorials and they seemed to do it this way.
What is the go here with PHP development. Should I be checking these things? if(isset($item-)) {...}, what is the best practice for PHP development?
I agree with the others - go for no errors. In fact, I suggest going beyond E_ALL and adding in E_STRICT, which is how I do all my development. There are good reasons for each of those notices, and you'll do well to be rid of them. The most notable reason is that the notices typically point out small bugs that can make it much harder to find and fix bigger bugs down the road. It's not too different from the idea of using assertions: they help you squish bugs as quickly as possible.
As to your specific example, rather than using isset() right before referencing it, I recommend initializing the object to a sane base state going into the page (perhaps using isset() at that point). For example, you might set the application_name value to an empty string. This will enable you to keep your output statement nice and clean but properly address the notice by making sure the variable is initialized before using it. (FWIW, in many languages, using unitialized variables causes an even more aggressive response in the form of a compile-time error.)
It is absolutely worth getting rid of the errors and warnings in your code for a couple reasons: