As others have said, set up a D: drive for your data, and tell Windows to put the "My Documents" folder on it. I also use a little program called SynchronX, which is free and can be used to keep any pair of folders in sync by copying the later versions of files to the other folder. The backup folder can be on a USB stick or even on another computer on the same network. The only gotcha is that both file systems need to be the same, as the file alteration times and dates are stored differently on NTFS and FAT, which can cause problems with recently updated files. If you use Outlook, then you need to install the pfbackup program from MS, and tell it to store the backup somewhere off the C: drive, or you will lose all your data from Outlook. It's a sod to restore, too, IIRC.
If you need to keep data on an XP computer, then it can pay to back up the "Documents and settings" folder first as it keeps all sorts of usefult stuff in there.