Some years ago when RAW first appeared I started working with them, first trying programs like Capture One, Bibble, Rawshooter, Photoshop, then finally Lightroom. I spent many hundreds of hours working on them, removing dust spots etc, then creating jpgs to keep and print. I did all this without reading up on RAWs, and therefore wasn't aware of xmp files and their significance. I was under the impression that all my work was stored within the RAW itself. Only later did I discover the importance of xmp files, which I had never created. So now, apart from the final jpgs, all those hours of work has been lost. Admittedly I'm unlikely to want to go through thousands of photos and do them all again, and the odd one here and there that I want to revisit will only take a few minutes to sort out dust etc. And I am increasingly going back to some of my earlier attempts and trying again with later programs like Lightroom 2 and improving upon them, both due to better programs and more experience. You can't do this with jpgs.
So I started creating the xmp files, which then led to the problem of keeping them with the RAWs. My Acdsee viewer is set to not show xmp, so every time I wanted to move things around, delete etc I had to reset it to show xmp. Then there was the renaming. Absolutely first job had to be rename the RAWs otherwise I had two renamings to do once an xmp had been created.
It all became a lot of work, so I moved over to DNG. All editing info is stored within the one DNG. No two files to keep or delete together. Simple renaming anytime. And they're slightly smaller than RAW. Once DNGs are created I delete the RAWs, which was a difficult decision at first but I'm comfortable with it now.
I've only started renaming in the past few months, after a few episodes of same name clashes produced by the two cameras I've used. I use the format 20081409 ### which keeps them in the correct order. I prefer the year at the beginning as I find it helps me find things easier. Having read Ephemeral's post on reverse date order I now see an even better advantage on reversing day and month too, which I'll start to follow now.
As for backup, I have things copied on to two hard drives initially - both internal, then on to an external after editing/renaming, and also on to a removable internal drive. Then I delete off the second internal drive to make space for new stuff. The final result is I have photos on three hard drives - one internal and two external.
I also copy to two dvds of different brands - in case one brand goes 'off' after a while and becomes unreadable. Been there - don't let it happen to you.
I know I should remove one set of copies out of the house but I don't seem to follow this practice as often as I should.
I've lost whole drives full of pictures on three occasions due to PC glitches, and used recovery software to get back most of those which I had failed to make backups of. But it is hours and hours of work, and best not to get in to that situation in the first place.