Here's my current development environment.
4Gb Dual core laptop running Windows 7 64-bit. I plan to upgrade to a quad core later this year.
Visual Studio 2010 Beta 2 for devleopment, but release builds are still done with VS2008.
I'm using a productivity tool called CodeRush from DevExpress.
I'm using TFS for my source code control and bug tracking. I used Visual SourceSafe before that, and SVN for a short time. I'm using TFS at work, and it also does bug tracking, so I'm happier with it.
My backups are being done right now wilh Microsoft 'Live Mesh' I'm backing up TFS, I'm also backing up my development directory, and several other directories. These backups are going both to three other machines on my home netowrk, and also up to 'the cloud.' Live mesh gives you a free 5 Gigabyte account which has been enough. I also pull off DVDs about once a month. The TFS backups are daily, and the backups of my development directory are near real-time.