You've just about got it
Exactly. Where the file goes depends on how important it is, and whether or not it will change. Of course there is no one way to do it; what really matters is redundancy. Say you have a folder with very important pictures, documents, or scans of documents. These might go on a one-shot CD or DVD (three copies is enough for me: one on the fixed drive, one on the PassPort, and one online). I still say that where you put your pivotal disk images depends on how often you create a new one. In my case, it's rewritable discs. And besides, even if you only create one backup set during the lifetime of one unit, you could use those discs again when you buy a new unit.
By the way, thank you for mentioning SkyDrive. I don't have enough critical documents to justify paying for a large amount of online storage, but I need more than 5 GB, and had basically written off SkyDrive when I first read about its public release. I've been using iDrive for the office machine, where I move up from 2 GB to 12 GB after sending an e-mail to three "contacts" (even if all three addresses are owned by me), and get a desktop synchronization utility for free. Then I have ADrive, which gives me 50 GB for free with no backup utility. But 25 GB with desktop synchronization? Now there is a happy medium! And best of all, I don't expect Microsoft to go belly up tomorrow, taking my precious files with them. Online backup is always a good thing to have, just in case disaster befalls your house. I think it's time for me to switch!