First, Google offers a boatload of free software. Google Earth, Picasa, Firefox, Skype, Google Toolbar, Star Office, and more. Look for the link button for Google Pack in the sidebar.
I cannot recommend FireFox enough, it is the browser to use to see web sites the way they were intended. Internet Explorer just doesn't do the job. Look for the link button for Firefox in the sidebar.
If you can't afford Adobe Photoshop, try out GIMP. It is a powerful, yet free, Image Manipulation Program.
Antivirus and Spyware Removal
Oh, some day this will be an issue for Mac users but those of you still slogging it out on a PC, try AVG to protect you from the dreaded virus. We used it for years and it caught and dealt with every virus we caught. I am pretty sure I used Ad-Aware for Spyware removal. It seemed to do the job.
I am just starting to use skype to video phone with friends and family. It recognized the web cam on my macbook pro automatically. My friend set up his webcam on his PC, it works, and its free! Come on family, set up those web cams!