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A holistic backup like you're asking for would be very large. Incremental backups could be stored as differences, but at the very least you'll be needing storage for a whole other copy of everything. This is an enormous amount of data to transfer online.
If you only use 30 GB of space and have a 1 Mbps upload connection (typical North American broadband upload speed), it would take nearly 3 days to backup.
An external hard drive solution is a lot more practical.
If you have Vista Business or Ultimate or Windows 7 you can use Windows Backup and configure it to use a different hard drive than the one Windows is installed on, that way if your main hard drive becomes faulty, you don't lose your backups as well.
If you're looking to create an image of your system, the only really viable solution is an external HD. I use Clonezilla to create a complete backup of my systems.
If you are on Windows, check out Windows home server. It can be configured to make automatic differential backups of your local system(s) every day, and it comes with a bootable CD that lets you completely restore a client machine from scratch. Home server machines are unbelievably cheap as well, here in europe I can get one for around 300€ with 2 tb storage and 2 gb memory.
A complete backup to the cloud is not practical, it's better to have the most important files be backed up to the cloud from some app running on the system itself, and have the entire system be backed up over your local network.
Virtual machines are nice but (IMHO) they have some weak points, particularly if you work with large amounts of data. I/O speeds are not great, and you also don't want your virtual disks to be too large. So while it's nice to do development, run app servers and such in a VM, it's not as nice to have your file archives, pictures, music library etc in there. You can of course keep them on a separate volume and access them from within the VM.
