The main disadvantage of this method is the very narrow connection between the bottles. However, as long as only air needs to pass through it, it seems to work very well. I'm sure there is some loss in energy, but the rockets still go like gangbusters. And if you use this with a narrow-nozzled rocket, I suspect the losses are negligible. (For a wide-open connection between bottles, use the permanent, bonded "circumferential splice" method detailed on Bruce Berggren's construction tips page.)
The basic part that makes this possible is a threaded nipple available at any hardware store in the electrical section, and the nuts that fit them. They come in two sizes, 1/8" IP and 1/4" IP (and no, I don't know what IP means.) Here's a picture of the parts laid out in order, and a cap attached to the bottom of a 1 liter bottle:

I used fat little o-rings I found in the plumbing section, but I think tough, flat rubber washers would be better.(This qualifies as o-ring abuse of the first order: o-rings are really designed for sealing the space between nested cylinders, not for squashing between flat surfaces.) In fact, if you use the nice flat nuts that are shown here, I don't think you need the washers at all on the cap side: the gasket material inside the cap seals well against the very flat nut. You'll still need a rubber washer on the bottle side, though. Others have used only one thick washer, between the cap and bottle, and that seems to work fine, too. Try different configurations and let me know how it works.
Note that if you do it this way nothing is needed between the cap and the bottle: all the sealing happens on the two "inside" ends of the assembly. (Actually, I ended up putting some thick rubber gasket material in between the two, not for a seal, but simply for friction to keep the cap from spinning as I screw on another bottle. Perhaps this is a good argument for using one washer between cap and bottle instead.)
You'll also want to add a "sleeve" cut from a spare bottle to smooth over the transition between the bottles. Here's a picture of a rocket made from two 1-liter bottles using the coupling, with a sleeve in place. You can barely see the white bottle cap between the two bottles.

This is my Old Reliable rocket, it consistently gets 350 feet of altitude at 100 psi, and the parachute mechanism has never failed, in over 30 launches.