"...is it worth investing in an external hard drive?"
YES - get one of those little 60GB USB pocket drives. And keep your master backups backup off site (at work or something).
Backup programs are fine, but they store your data in a compressed format which, while it saves space (not as much as you think) can be a real nuisance when your box is down.
XXCOPY
http://www.xxcopy.com/index.htm is free for personal use, infinitely customisable, VERY fast (esp. for incremental backups) and you can build batch files (remember them?) that will run selective backups when you schedule them in Scheduled Tasks.
You DO need to read the documentation and certain degree of familiarity with the console (command line) is helpful.
Spitoon -
Oh yes it is!
Hidden away in your Windows XP Home Edition CD is the installation program for the Backup app. Just put in the XP CD, and navigate to <letter of your CD drive>
Valueadd\msft\ntbackup
Run NTBACKUP.MSI (it might look like just "Ntbackup") This will launch the installation Wizard, which will install the Backup utility automatically.
Start > All Programs > Accessories > System Tools > Backup - and Bob's your uncle!
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"Bother," said Pooh as he struggled with /etc/sendmail.cf, "it never does quite what I want. I wish Christopher Robin was here."