What Nr Fairy said.
Hardware firewalls are also great when it comes to setting up a new computer, as you don't have to worry about some virus sneaking onto your computer before you get all of your firewll and anti-virus software installed. Not such a big deal with WinXP SP2, but not everyone installs that yet.
After that, the software firewall will keep things like key loggers from phoning home. Consumer level routers with built in firewalls just assume anything coming from your PC that is going to the internet is legit and will not stop it.
goates