How does the current Bitcoin software deal with sequence numbers that are not 0xffffffff? Is every value for the sequence number accepted? If a miner receives double-spends with different sequence numbers (all with zero confirmations), will it choose the one with the highest sequence number for inclusion in a block?

It seems that the "microtransaction channel" implementation in bitcoinj always uses sequence number 0 for to-be-updated transactions. Is this the recommended way of setting the sequence number?