I use a couple tools. For the system disk, I use the Windows Image Backup tool that is included with Win7 and back that up to a USB disk. WIB uses the Volume Shadow Copy service to take a snapshot image of the disk. The image file is in VHD format, that which can be mounted later using the updated Disk Management MMC. You can also perform a full restore of the system using the recovery tools on the Win7 DVD. Also note that WIB runs differential backups.
A scheduled task can be created using the command line tool wbadmin.exe to backup the disk regularly. I've been using this method to backup Win2008 servers at work and it works great.
For my data (music, picture, documents), I use robocopy.exe and back that up to my Time Capsule. I don't need everything on my data partition and that is why I use robocopy instead of WIB. Plus I can conveniently access my music and pictures from other computers on the network. since it is stored on the Time Capsule. Microsoft updated robocopy in Windows 7 to include multi-thread support.