OSNews

Mail:
Thunderbird from mozilla organization. Though I mostly use gmail/yahoo for personal emails (at home).

IM:
Gaim is a multi-protocol IM software, supporting Yahoo, MSN messanger, AIM, ICQ, IRC, and few more. It allows you to compose your messages using its built-in WYSIWYG interface. And if your friends have multiple accounts, it can club them into one single entry which you can expand if needed. It even has RSA encryption (through a plugin). Miranda is another very good IM software.

Anti-virus:
I use a product (appropriately) called antivir from H+BEDV. It is very light on the resources and gets updated daily. You can also use AVG anti-virus from Grisoft but antivir gives you much more fine-grained control over dealing with viruses.

Firewall:
I use Kerio personal firewall from Kerio technologies. It's highly customizable and in addition to providing network security, it also provides very good system level security. Meaning it will alert you if an executable tries to launch another executable. And you can create custom access rules for different programs. Zonelabs also gives a free version of their famous zonealarm firewall but free version does not allow you to specify policies for individual programs. Though Sygate personal firewall is also good, you can create only 20 custom rules in free version. Needless to say, do not trust Windows firewall that comes with XP SP2.

Data Compression:
7-Zip is the best freeware compression tool out there. Its proprietary compression format 7z claims 30-70% better compression ratios when compared to regular zip format. It even supports rpms and deb formats,in addition to all the other major ones.

Imaging:
irfanview is the best freeware image viewer/editor that I have used till date. It supports any image file format that you have ever heard of. And its editing capablities are more than sufficient for casual users. You can crop/convert/apply filters/get EXIF/create slideshows/change color depth and do many more things. Don't forget to install the plugins though.

For everything else, there is of course gimp. One more good application is Paint.net. It is under active development but looks very promising. You need .Net runtime for this though.

File Utilities:
SC-DiskInfo will quickly show you how much disk space is being used by different directories. Run it on 'Documents and Settings' folder and be surprised by the amount of space being taken by temp files. It displays the space usage in a very nice bar graph. If you keep wondering where your disk space has gone, get this software.

To recover files that got emptied from recycle bin also, Restoration is a very handy utility. It woks on all versions of Windows and does not need any installation. Just unzip and run it, preferrably from a floppy.

Misc:

Some other programs that I use are - Spybot Search&Destroy for removing spyware, CmdHere power toy from Microsoft (for Windows XP), free version of Joel Spolsky's CityDesk for (clean) HTML composing, and Clip Path for capturing the full path of a file/directory to clipboard.

There are many more programs out there than I could ever test. But these should be sufficient for an average home user. And if you like any of these, consider donating some money to the developers. Even five or ten dollars go a long way towards paying bandwidth and hardware costs. You can also help with documentation or programming. At the minimum, send an appreciation email to the developers and thank them. It does wonders for their motivation and encourages them to continue working on the application. Some sites like SourceForge sell T-shirts and you can show your support by buying them. Remember, no help is small help.

Let's go exploring:
If you want all this software and more on one CD, here are some links to explore -
The Open CD - Offers CDs and free iso images containing most of the applications listed here and many more. Updated regularly.
GNUWin - This is similar to OpenCD but offers a lot more software. It was lagging a bit in terms of updates (at the time of this writing) by abount two months.