Once you really are switching every few minutes, and you learn to trust the other guy to figure that crap out himself, then you can stop watching his semi-colons and start watching ahead for what you are going to do when you get your turn to drive. I have worked with someone like that, and the effect was profound, we would get done sometimes 4-5 days of low bug count, high quality work each day. You have to learn to disengage just a bit and start actually thinking about how his work fits in the big picture, and what you are going to do next, not his spelling errata.
As for hardware setup, the best I have used is: machines with cloned monitors, two mice, and two keyboards, both side by side so the developers can talk in low tones and not bother anyone else. I do this now at work, and it is a lot of fun, and it really averages to be that we get done more than twice what we would work normally alone.