One of the best features added in Vista and now in Windows 7 is system imaging. System imaging is the best way to back any computer system. I have backed my system up using this utility and I'm lucky to have not had to restore yet. I've used other products with great success in the past especially when upgrading to larger hard disk drives.
The downside to imaging is that it does take some time and usually requires a second or external hard drive. You can also image to DVD's but this will require several disks. I just upgraded from Office 2007 to 2010 and make a system image in case something goes wrong. By the way it didn't and I really like the new office. Outlook is a lot quicker.
The issue I have with external USB drives is as a tech I tend to carry them around with me from time to time and they do not seem to last very long. If you have a fire, flood or other disaster at your home or business your external hard drive will probably be lost with your computer along with external hard drive and the data on it.
With an online backup service your data is encrypted and then copied off-site to a remote location preferably a data center. The Fast PC Networks online systems is located in four data centers through out the country. Our service also gives you the option to have your data replicated to a second data center. Where and the quality of the facility where your data is stored should also be taken into consideration. Data Center storage facilities should have multiple levels of security and properly trained staffing. Most hacking occurs because of social engineering. Data centers usually have redundant network connections. We consider backups a business critical application. FastPCNet also deploys its backkup servers in clusters, three per data center so if we have to perform upgrades or maintenance we still have two servers online to balance the load.
To protect your machine you should image it every 3-6 months or when you make major changes to the system like installing new software, then use an online backup service to save your machine image and the files you change on a regular basis.