Just to follow up on this (and not to hijack the thread); does one respond to the contract offer while waiting to hear from other presses? If so, how? Or, does one just not respond until you hear from the "dream press" one way or the other? I too, am about to start shopping around a manuscript and am wondering about the protocol.
I was in the same situation last summer, and I told small press (who wanted me to sign a contract right away) that I had the proposal out with several publishers. I told small press that I sure was interested in working with them, but of course I wanted to be sure that my ideas were getting the widest dissemination possible, and I'm sure they understood that I needed to get a response from everyone. Since ultimately a major international publisher picked up the book, I was glad I waited. The acquisitions editor at small press in fact did understand and was willing to wait, BTW.