Automatic updates - Windows update is usually configured properly to download and install updates automatically. I have found with two XP installations that I had to manually get SP2 installed first. You can check yours in Start/Control Panel/Automatic Updates.
Anti virus - In both cases I had to get an anti virus running first before I could get SP2 to install. Maybe the viruses that were found where desperately fighting to keep the exterminator from getting in.
UPDATE Dec 2010: Instead of AVG you should install MS Security Essentials. It is free and from Microsoft. I have run it on one of my computers for several months now.
Ad-Blocking - Use some simple ad-blocking extensions for your favorite browser. Your sanity and your computer's health will thank you. (Added Jan 2013)
Chrome - Adblock Plus, Ghostery (I use it to block taboola)
FireFox - Adblock Plus, Ghostery
IE - Simple Adblock
Firewall - I don't use a firewall. I have a router between my cable modem and my network. It blocks much of the bad people trying to access your network. You may want to install one if you have people that aren't careful on your network. It will stop malware that you have mistakenly installed to try and phone home.
Internet filter - (Updated Jun 2015)
OpenDNS Family Shield is a free option and it will protect your whole network, if you set it up on your router. It pays for itself with ads. Whenever you hit a site that is blocked a OpenDNS page is shown with ads. You can choose a paid for option and eliminate the ads and increase your log retention to I think 2 years. Here is how you set it up.
Also, we use practices like putting the family desktop in an open area and rules for laptops to be used in an open area. We put passwords on all desktop and laptop computers that only mom and dad know. If they want to use one, we log it on for them for a specific purpose and then they are off. And we use the buddy system for additional precaution.
The technology we use is mainly to prevent someone accidentally coming across unsavory content. Much more powerful is open and often dialog with your children. Talk to them about everything. Listen to what they say. They will come to trust you when something disturbs them. Teach them to stop, crash and tell. If something disturbs them on the Internet, stop. Crash the device or computer. And tell their mom or dad.
As a parent, it is our job to help our children navigate the dangers of the Internet. Gain their trust by being compassionate and empathetic. Teach them the dangers of porn. Teach them to not ask Google about sexual things but rather their parents. Teach them that sexual intimacy is sacred and beautiful and only one aspect of the wonder of marriage. Express love in ways they feel it.
Defragment - Windows 7 and newer automatically defragments automatically.
Reduce start up apps - Programs sometimes are intrusive. They want you to use them. They get themselves to start up when you start your computer. They can slow your system down. Here I detail how you can tell your computer what is important to you.