Things I Am Not Clear On: Title Case in Headlines

Some things about copy-editing will always throw me. A personal failing: I have to look up any word with double letters, every single time. A cultural difference: The dictionary I used at most of the magazines I worked at, Merriam-Webster's Collegiate, has different preferred spellings (and hyphenization) of some words than Webster's New World, which we use here.
But then there's the case of headlines. Here are the rules I learned:
Capitalize the first and last word in headlines and titles. Capitalize all nouns and verbs, and prepositions of four or more letters. Don't cap the, or, as, a, an, but, by, in. So and up are always up. And words connected to other words are capped. So Finding Beauty in Negative Spaces but Soul Asylum and the Horse they Rode In On.
I always figured the latter was correct because in, in the case of the second album title, Soul Asylum didn't ride in the on. They rode in on the horse.
It came up this week, because the headline on this week's cover is "If You Lived Here, We'd Have Blogged About You By Now." After much agonizing and half-assed diagramming of the sentence, I decided that Now was an adjective and that in this case By was an adverb instead of a preposition and as such got capped. But as is an adverb, and it's usually down in headlines and titles (e.g., Queer as Folk). So actually I have no argument at all here. The rule about it being "connected to" another word is vague. Little help?
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1:21 pm
This is why I quit copyediting. (And I'm not even positive that the term is closed, but I can't find my AP book at the moment.)
1:48 pm
Verb is hyphenated, noun is closed. In New World, anyway.
3:27 pm
"by" is a preposition in this case, because it links the verb to the object ("now"). It would be an adverb if it could modify the verb even when no object was present.
e.g., "She lives by me" - preposition.
"She lives close by" - adverb.
So it should be lowercase.