Assuming this is a windows machines I try just backup everything in the c:\users\username or c:\Documents and Settings\username except for temp or cache files. This has gotten a bit easier in win-7 since every folder, not including the hidden AppData folder, in the profile directory is data I probably want to back up.
I try and avoid backing up AppData or Application Data and Local Settings, since they contain caches and temporary files. But they do hold application specific profiles, like those associated with Firefox, Outlook, Thunderbird, Pidgin, etc. I tend to just pick them out of the AppData folder or, Application Data and Local Settings.
For the applications themselves, I have an textfile with all the CD keys in My Documents for applications I own. I try to have the disks in a CD book, or at least an .iso backed up somewhere. It is a pain to recover them from a backup and I fine that a clean re-install of software tends to cause less headaches down the line.
For other OS's the process is pretty much the same, the names just change. Backup all:
- all user files
- your application's user configuration profiles
- anything you need to re-install the software
Beyond that, it is probably cruft, or carrying cruft, and you are better off rebuilding it.