I hate reformating. I hate losing data.
So I use a single 74 GB Raptor and two mirrored 400 GB WD Raid Edition 2 Drives.
Raptor has two partitions, first gets all my installed software, 2nd all my personal files, desktop folder, my documents folder, mozilla profile.
True Image 9 is used to backup my OS on a regular basis. Anything goes wrong and I am up and running in under 15 min. I keep a image made after a clean install so I only have to install once.
Dantz Retrospective takes snapshots of my personal data. So I get not only backups of the current version, but all previous versions.
Backups are stored on the RAID 1 array if I am lazy, on DVD+RW when I am not.
Three simultaneous hard drive failures need to occur before I have to reinstall my OS or lose any personal data.
True Image 8 didn't like my RAID arrays which rules out RAID 0 for my primary drive. It could backup from within the OS, but not backup or restore from the CD.
True Image 9 see's the RAID 1 no problem.
Someday I will pop in a couple 120's in RAID 0 and see if True Image 9 can handle it.
Then maybe I will buy a 2nd Raptor. But if I start playing a game which my ATI X800XL can't handle, I would buy a better graphics card instead.
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As far as how much you should spend on your hard drives, you have to think about how much you are putting into your system as a whole.
I bought the Raptor only after I was comfortable with the quality of every other component in my system. I added the two 400 GB WD RE's a year later after upgraded my motherboard/CPU/RAM/Video card.
Unless the rest of your system is already top notch, it is a usually a waste to invest in a faster hard drive.