Hi jst42day! There are many different ways to backup your data, as you have mentioned some already. I think the best advice I can give is to "share" and let you decide.
Once upon a time, I was 'blind' to the computer and the needs of maintenance and backup that it has. I lost everything in one of those rare, catastrophic mechanical hard drive failures (thus, no SMART warnings...). I lost years of digital photos, all my business files, the lot, you name it. I now have the following:
* OS on C: partition (40gig), all data (files/pictures) on D: partition (rest of drive). This is an extremely helpful option, as sometimes the OS (in my case, XP Home) decides to be naughty and you need to re-install. I am never worried about this, as my data is safe on D: partition. I happily wipe C: and install away...
* 80gig USB external backup hard drive, to which I regularly copy all D: this takes about 10 minutes, maybe a little longer, so I try and do it minimum once a week. Thus, in case of mechanical failure again, I have everything on another separate drive.
* About once a month, I burn all of D: to blank dvd's as well, this gives me an extra copy of all my files. I have all my dvd's stored in a proper disc case away from the computer. This ensures that if I have two mechanical failures, or my computer blows up in flames and burns my external next to it as well, I still have a fairly recent copy of my data.
* Windows Live Mail (formerly Hotmail): I e-mail myself the most critical of my business files, so they are stored on the web. My most critical files are not very large in size, so this is easy for me. If I had large files, I would consider a web backup solution.
I hope this helps! I have also heard that imaging software is good, as is using a RAID (I think it's 1, where it copies everything to both disks at once). Whatever you do, just make sure that you keep everything (backups, maintenance) up to date. As you can see in my "share", I have many different options for my data, as I'm sure on a rare occasion you could lose both the original and the backup, and then you are back to square one!