Leo Noteboom answered the question "Is it possible for a hacker to get my Hotmail password without access to my computer?" which gets at most of the ways that passwords are compromised. It could be a password for any account, but I think his answer covers the bases, and is humorous too boot.
How strong is your password? You can check it online at Microsoft.com. You can also learn more there about creating passwords.
It's easier to manage Web site passwords if you keep them in separate categories. I use "nuisance", "sensitive", and "paranoid" for my categories. Any old password will do for the first. You need something stronger for the second, and critical passwords should be "very strong".
"Nuisance" passwords are for Web sites that require a password before you can access content -- "The New York Times" for example. You can just use one common password for all sites in the nuisance category. For example use "look" as the common password, with "loooky2" as the alternative when a numeral must be part of the password.
Use a password generating formula for "sensitive" Web sites. Examples might be your Excite.com personalized page, an About.com forum, and your Yahoo.com email account. The passwords would be exc73xyz, abo73xyz, and yah73xyz for these three sites. You can guess my formula (but don't use it) from these examples. If a hacker did get one of these passwords, they could easily figure out all your other "sensitive" passwords, but you don't have that much at risk except inconvenience.
Use a different, strong password for each and every situation where you are "paranoid" about compromise. Online banking, mutual fund accounts and broker accounts are examples of sites that you should put in the paranoid category.
I have two strong passwords that I don't keep on my computer and don't write down either. (I'd need them if the house burned down anyway, so it's better to rely on memory.) These passwords let me in to Password Safe (see below) to get my critically sensitive Passwords. I use them frequently enough to remember them, so memory works for me (in this case).
I use Firefox as my browser. Firefox stores passwords and form data. When you return to a particular website, Firefox fills in your user ID and password (or other form data) automatically. Don't let Firefox -- there is always a choice -- store your critical passwords. That's one of the first places a hacker would look.
Don't rely on your browser as the only place you keep your passwords. It's too easy for them to be erased.
The most secure program that I know of for storing passwords is Password Safe. This free program will also generate strong random passwords to use. (I have confidence that Password Safe will keep my passwords secure because it was developed by people who are top experts in security and encryption.
I use Dropit for less critical passwords. It makes passwords available with just a click. There are many other programs out there like Dropit. I'd be careful about which one I selected though. Some of them are spyware in disguise. Especially the ones that promote themselves heavily.
Many people swear by Roboform. It's a Password Manager, Form Filler and Password Generator. They have free and "pro" versions.