Having seen and sometimes experienced quite harsh accidents, I have (rather in a pace of the evolution) developed the following backup system based on my optical drive:
a) Once upon a time I backup everything important on a DVD-RAM, which is actually very good format for this use. You can always rewrite only the files and folders you need to and when writing to the media, everything that is written is automatically checked against the original data (because of that, even though the writing speed is 3X, you get 1.5X in practice).
b) In theory, the DVD-RAM should be bulletproof, but in reality it is not. It has already happened to me that I could not read a small part of data from this backup DVD-RAM because of CRC check failure. I do not really know what it caused given the DVD-RAM theory described above, but the DVD drive went completely useless in 5 months and this might be an early problem connected to that.
So I also once upon a longer time backup this DVD-RAM to a DVD-RW. Once upon even a longer time, I back it up on a DVD+R and I of course do not throw the old one out.
So, if DVD-RAM fails, I have DVD-RW. If even that fails, I have the DVD+Rs.
The problem with this system is that when drive goes broken, you do not have to immediatelly recognize it and you can still burn your backup media for some time not knowing anything.
Therefore, I think it would help me if I had at least a drive with the media testing (PI/PIO) capability and the best would be if I had an external hard drive as another back up option, but I do not think that right now I could justify the expense, because the system that I already have seems quite safe to me, but I might buy it, because the data backed up is really precious to me.
By the way, I would agree that backing up on anything that is permanently in or connected to the PC is not really a safe backup, since I think there are lot of ways that a whole PC can go off taking anything connected with it.
Overall, I would say it is always better not to feel safe about your backup system. A healthy level of paranoia certainly won't harm you here.
And one last thing: concerning the OS failure (e. g. you cannot boot up), it is always good with Windows to have 2 safeguards:
a) Some external tool that regularly (e. g. on startup) backs completely up your registry of which failure will in most of the times be the cause of you not being able to boot up. For WXP, there is
ERUNT, which does exactly that. When you cannot boot up, you only have to run a batch file included with every backup from the Recovery Console (the backup has to be made into the Windows directory for this purpose).
That is in theory. Luckily, I haven't had to try it in practice.
b) Some OS bootable from CD, DVD, flash disk, etc., in case the registry back up does not work and you have some important files you on the system drive you would like to back up before formatting the drive.
BartPE is quite good for this, but one has to spend some time tweaking it to his personal needs, at least in my opinion.
These are at least for me necessary safeguards concerning the OS. It may look too much to someone, but having experienced so many nightmares with it, I sleep much better with these tools in mind.