I've read that the Windows backup (for XP) program doesn't backup files in use. Since the program is run from Windows (accessories/system tools/backup) how can you back up the entire disk, including the OS?
I've used XP backup for many years and have never had a problem with it. But I never did trust it to restore the entire OS because it doesn't have a standalone tool to boot your system and restore the backup in the event of an OS drive failure (a "bare-metal" restore). With XP backup, the only way to restore the OS is to install a clean version of XP and then ask NTBackup to restore a saveset over top of the running OS.
While NTBackup can SAVE files in use, my experience is that it's not so good at RESTORING files in use, which you have to be able to do to restore an saved OS over top of a running one. I was never able to get this to work to my satisfaction in pre-XP versions of NTBackup, so by the time XP rolled around I basically gave up and just assumed it wouldn't work. My strategy was to use NTBackup to save my data files and just to an OS reinstall if I ever lost the system drive (which I never did).
I haven't used any of the recent third-party backup tools, but I assume that they do a lot better job of a "bare-metal" restore.
Windows 7 is much improved in this area - it can create an "image" backup of a system disk and burn a stand-alone DVD the you can boot from in order to restore the OS to a failed drive.