i use cdrw's for daily backups and cdr's for monthly backups. Luckily my data fits onto 1 disk. I keep monthly backups in 3 locations, 1 at the computer, 1 in a safe in case the computer is stolen or house burns down, and 1 in my car incase the safe is stolen).
If it was more data i would then use dvd-rw's & dvdr's and the prices for these drives have dropped to about the same price as cdrw drives.
I have all my programs on cd's.
I would then install win xp from scratch including a fresh format, do all the sp's etc, then install programs from cd's then reinstall data from cdrw.
of course with hard drives getting so cheap you could install a 2nd big hard drive and install all the programs [even the original programs which you could later reinstall onto 1st drive] and data on it and install win xp on your 1st drive.
The only thing i don't like about this option is:
1. if someone steals your computer you lose all.
2. if the house burns down u lose all.
3. if a virus infects u could lose all.