I use a Jandd rack and Ortlieb panniers. The whole setup is about $140.00, more than I paid for the bike actually, but it's worth it. The rack is very sturdy, and longer than most, so your heel doesn't strike the panniers, and the Ortlieb panniers are the best things EVER; they're totally waterproof, easy to clean, and very durable. Best of all, they go on and off the bike in about 2 seconds, and I'm not exaggerating. My bike is my only form of transportation, so I use this stuff alot, sometimes to carry heavy loads, and in a very rainy environment, and I've yet to be disappointed.

Of course, we're talking panniers here. If you're into serious performance, go with something else. Panniers turn your bike into the velo version of an old pickup: good for utility purposes, but not terribly sexy.