Windows 7 backup has the potential to be awesome. It's bundled free with the OS and uses the volume shadow copy service to let you back up files that are in use. And the Windows install CD is smart enough to let you restore from a backup archive if you run into problems.
I got it to work and backup a few times, and then trouble. It just quit working.
Other people have had the same problem as me and there has been a Microsoft TechNet question open for almost a year now with no good solutions from Microsoft:
Some people have tried a workaround successfully which involves repartitioning your HD, but others have not. So beware.
I've since given up on Windows 7 backup, but might revisit it later if they do solve the problem.
Instead, my current backup solution consists of using two pieces of software to make redundant backups.
The first one costs money but it is really fantastic. It is called Rebit and works like Time Machine on OS X.
You install the software and covert an external HD into a Rebit appliance. Then every time you plug the drive in, the software automatically starts backing up your drive.
The second is a free software from Paragon. It is the most full-featured free backup program I've found and even lets you perform differential backups. It is free for personal use.