Nice work Wil. I wanted to add some Mac OS X specific things though.
Part 1: Data versus the whole system?
I would simply look at the practical implications. Disk space is cheap. Time is costly and not replaceable.
A full system backup with the Time Machine feature in OS X will make recovery very simple in the case of a hard drive crash. One of my client's drives died last week. Installation of the new drive and recovery of all the software and user data took about 2 hours from a firewire 800 Time Machine backup drive. Compare that to the task of reinstalling all of the applications (this was a graphics machine), finding the serials and installer disks, and trying to make it exactly like the client left it before the crash with an incomplete backup. That's typically a 4-5 hour task, a big headache and it doesn't include the download time for all of the mammoth-sized updates.
If you can't use TimeMachine, you might look at Bombich's Carbon Copy Cloner. It has an an option for incremental backups, meaning only changed items are backed up, and can be scheduled. Of course you don't get the versioning like with Time Machine.
In the event of a hard drive crash, a Cloner backup could be used to restore the data, including the system, back to the new hard drive. One possible hitch is if you were to purchase a new machine. The system on the backup would probably not be appropriate for the new computer. You still might be able to use Apple's Migration Assistant to pull the applications and user data back. In either case, your user data will still be available.
OS X Server is a little different story, but I'm assuming you're talking about plain old OS X.
A full backup is the way to go. I would recommend that only critical data be sent to an online backup. Sure, you could probably recover with a full online backup but, depending on your internet connection and the amount of data you have, it could take days. Plus online space is not such a bargain in large quantities.
Bless you for keeping the System Install disks. So many people give me a blank look when I ask for them (You mean those were important? What do they look like? I don't think we got any when we bought the machine). I might be able to install a system for the client from my own media, but some applications, notably iPhoto and iMovie, are only included on the original system install DVDs. Then the client is off to purchase an iLife box if they ever want to see their photos again.
But in reference to your question, keeping system disks will mean you don't absolutely need to do a full backup. However, be sure and keep track of the installs and serials for any other applications you have installed as well.