+1 on Ubuntu Linux - I haven't run Linux on a personal machine in about ~10 years, but am planning to resume so in a little while, and that is the flavor of *NIX I would choose these days - quite simple/painless without alot of rebuilding this&that required. I'll still run a couple of M$oft Windows machines because so much software I need to use for client work only runs on Windows - or is only officially supported under Windows.
+1 on separate passwords and keeping a book. Actually, I keep my web account/passwords in an encrypted text file on each of my PCs, and periodically, when I've updated/added/changed some of them, I print out a hardcopy to keep in a filing cabinet. I have a couple "throwaway" passwords that I use for non critical things like saxophone forums, etc. but any credit card, paypall, banking or other crucial accounts have unique , strong, alph-numeric passwords with mixed case, etc.
Norton 360 is a pretty good product for general PC protection. I'd recommend Norton Ghost, or LapLink DiskImage, for doing periodic disk images onto an external hard drive every week or two, and then you could simply restore from a backup image instead of having to reformat and reinstall everything from scratch. LapLink also has a product called PC Synch which might be of interest.