Protect Your Computer
First if you have personal files on your computer that you cannot stand to lose such as family photos then you must back up on a regular basis or someday you will be sorry. You can put them on CD or DVD or another drive but please do not wait until it is too late.
Stop using Internet Explorer and get yourself a copy of Firefox. There are many reasons to do this. People who write viruses etc usually aim at Microsoft.
Internet Explorer also allows Active X to run in the browser. Active-X allows web sites to run software on your computer. Microsoft uses this technology to update your Windows but do you want other people to be able to do the same thing. I think not. There are other ways to update Windows or you could just use Internet Explorer for that one purpose. There are many more reasons to use Firefox but any search on Google will give you lots of articles to read.
Get yourself a router even if you have only one computer. The router goes between the Internet connection and your computer giving you an extra line of defense.
Anti Virus/Spyware
I use AVG Free Edition and have never had a problem with it. Unlike programs like Norton Anti Virus it does not have a huge impact on computer resources. I use Ad-Aware (free) and Spy Bot Search and Destroy (free) for Spyware.
Backup
An ideal computer would have two hard drives and a DVD burner ( could be CD burner but DVD burners are cheap). I would partition the first hard drive into at least two partitions instead of the one that computers usually come with. You can use EaseUs or something simliar. The other hard drive can be partitioned if you like but not nessecary for what I propose. You partition the first hard drive so that you can have Windows on your C drive and all your personal files on your D (or other letter) drive. This one step alone will save you from losing your personal files if Windows crashes and you have to reinstall.
Even better than that is to get a good backup program to back up your personal files on a regular basis on to your second hard drive. There are a few out there but I prefer Macrium Reflect. It is free and backs up whatever files you want on a nightly basis of daily changes as well as a full backup every 2 week or so. It is indispensible.
I use Acronis True Image to make an image of my C drive when it is in good working order so that if I ever have a problem I can reboot my computer with the boot cd and restore my computer back to the way it was the last time I ran Acronis. This has saved my bacon more times than I care to count. It is not free but well worth every penny. It sure beats reinstalling windows. Windows XP System Restore is a pale comparison to TI. This can be a valuable tool for families with children who always seem to be infecting the computer with Spyware and/or viruses.