HI there - I'll try and answer things one by one
1. Is RAID 1 a good backup strategy, or a waste of money, should I stick to the old copy and paste method?
nope
RAID isn't a backup strategy at all - its just a way of providing some fault tolerance. Here an example , you buy 2 Hard drives and mirror them , so that if one fails then you have time to replace the drive. However , what if they both fail at once ( which if they were bought at the same time is pretty likely )
The level to which you take your backupos to depemds on the value of your data to you
If its really critical stuff , then you might want to consider tape backup for the really important stuff , or burning a regular DVD ( use good quality DVD's ) or perhaps a removable drive you can keep somewhewre else ( then you are covered in the event of burglary )
2. Is it possible to run a seperate 120GB drive for my OS (Windows XP) and software, and have the RAID running as well for my data?
yes it is , In fact its probably easier to install windows like that.
3. Are PCI RAID controllers any good? I'm not about to go and buy a new motherboard just for this.
They'll do you just fine ( ideally a battery backed one but you can't always get them ) - besides if an onboard raid controller dies then you have to swap out the who motherboard , which makes keeping/ obtaining spares easier ( not that if your radi controller dies , then your RIAD one array might not work on a different model controller so it might be worth keeping a spare
I hope this answers your questions
as for running Servers in an Enterprise environement where uptime is important , then a server not running RAID is a liability. A combination of hotswap drives and a good raid controller can reduce downtime significantly in the event of HD failure. You have to think of hard drive failure as a "when" , not an "if"