1) As long as your system is in working order and in a state you're happy with, backing it up now is fine. Just keep it running well and up to date. It IS better if you have a clean image you can restore to in addition to the nightly full image but that should only be needed in very rare instances.
2) Yea, it WAS a Western Digital with power saving mode. It would shut itself down when it wasn't being used and power itself back on when needed. Unfortunately the case died, so, I had to put it in a new case that doesn't have power saving. So now I just leave it on.
3) I have most of my data in the Vista user profile directory. Pictures, Downloads, Documents, etc, etc. In the Documents folder I set up my profiles for email, trillian, etc. The sweet thing about this is that if I change OS' between XP and Vista, I can restore the data image on top of it and have all my latest data for email, chat, bookmarks, etc. Even if I had to do a clean install for whatever reason, I can still restore my data on top of that. Of course, if you only have one OS, this is rather pointless. You can restore select files and folders from any image so it's not a big deal.
Thanks for your insight. the reason why I asked #1 and #2 was I am not too concern about the image once I backed it up. I am more worry about the back up drive since I had few drives fail incidents before and if the drive going to be on 24X7, this back up drive will die one day and when died no matter how latest and greatest of this back up, we won't able to use it. Therefore I am thinking I need a solution like yours #2 before, power saving mode, just power up and power down when back up completed. I just want to make sure this image is going to be available for sure if need one day. Maybe we need a back up of the back up