I've incorporated during development.
The reason was that I could purchase any software or services I needed on my company's accounts not the personal ones (hosting, development tools, Paypal, etc).
I started to build my corporation identity early in the game and that kept me motivated.
I would say it depends on how far into the development phase you are. If you have another 2 years of development and you'll only be spending a couple hundred dollars in that time, it's probably not worth incorporating now. The reason being that you'll probably end up paying more in yearly state incorporation fees than you'll gain in being able to deduct the few hundred dollars in business expenses. And at this point, odds are you won't run into any liability issues.
On the other hand if you're about 8 months away from releasing your product (I just picked a number, it could be more or less than 8 months), I would incorporate. You'll want to get your website up months in advance of your release, and you'll probably be spending more money the closer you get to the release date.
In my case, we incorporated 5 - 6 months before our initial beta test. We're using that time to set up our website (still not done), get our books in order before we start selling anything, and our expenses increased so we're using the business bank account now. That being said, get your domain name now. We claimed our domain name about a year and a half before we incorporated.
To sum up: Yes, you should incorporate while you are still in the development phase. Do not wait until you're product is finished and/or you have customers. The key is determining how much in advance of your release you should incorporate.
Just for the sake of argument, I don't see a reason to spend money in incorporating until you actually need to be incorporated. If you are not moving money around, you don't have investors and you don't have employees, there's little reason to incorporate.
My humble view is to get incorporated as soon as possible; it's a clear signaling of you being serious on what you are doing, plus you're doing business. Expect this to have only positive results from finding partners to potential clients and investors to your social circle, too.