I did varnish then paint, as the varnish will show on the paint if you look closely. I masked just over the edge of the deck onto the hull. Remember to pull the masking tape off before the paint sets, so so don't get a step. 

I solved this problem on my hybrid by covering the joint with 1/4" black marine vinyl tape. It still looks good after three years of hard use, and gives the boat a very professional finish.

I applaud you for wanting to paint the hull. Varnished plywood tends to look cheesy next to varnished cedar. A painted hull, on the other hand, tends to make the varnished deck look even better.

You can see photos of my boat, and the black stripe, at http://twofootartist.com/merganser-construction-notes/

-Wes

Yes, Wes, I have seen your Merganser Construction notes-that's where I got the idea! Odd: my first build was stitch-and-glue, and I thought all the plywood looked pretty nice. You're right-the cedar deck makes the plywood look "worse" than it does next to more plywood. I'm beginning to see why painting Hybrids' hulls is so popular.

And a varnished plywood hull can be stunning, especially if its finished with marine urethane, which is clearer and brighter than varnish. Check out my daughter's Ganymede at http://twofootartist.com/ganymede-construction-notes/

-Wes

I painted my hull because:

I didn't like the puzzle joint

I over sanded the hull into the darker plywood, looked blemished

And I've always always wanted to paint a boat...

I painted hull first because i figured I didn't mind if my varnish overlapped the paint slightly and as it turns out you can make great lines with painters tape

http://www.flickr.com/photos/greyskies/5913915202/