The following is a list of software I recommend. Most of it is free or extremely cheap.

Security

ZoneAlarm - A very popular firewall application. For personal use the basic Zonealarm is free.

AVG Antivirus Free Edition - A popular antivirus system which is free for home use.

Adaware Personal Edition - A popular spyware killer and nasty eliminator that is free for home use.

Spybot Search and Destroy - Another popular spyware killer and nasty eliminator that is free for home use.

Internet

Firefox - An alternative to Internet Explorer. Its more secure, its open source and its free! Internet Explorer 7 is about 3 years behind in terms of features. Why are people still using it?

Thunderbird - An alternative email client to Outlook. Its more secure, its open source and its free!

Filezilla - An excellent FTP client for uploading and downloading stuff from webpages. Its free to download.

Applications

Open Office - An alternative to Microsoft Office and lots cheaper. Its free and perfect for home or small office use!

The GIMP - A free graphics manipulation application. Similar to Paintshop Pro or Photoshop but much cheaper. It's free!

Misc

EditPad - Probably the best text editor available.

Sound

MP3Tag - A good application for tagging MP3 files.