Just a note, this won't work in an extremely high crime area, if you live in a place where people are willing to strip the parts off your bike, don't let it out of your sight. If your lucky enough to live in a city where you can just leave your bike unlocked, then you probably live in a city with more cows than people. For those moderate crime areas, this should work.
There seems to be a bit of a misunderstanding here. People keep on recommending better locks under the assumption that they are harder to break. Any lock can be broken, but if the thief has the time to take a car jack out and spend the ten minutes prying it open, its your fault for leaving your bike there.
People also suggest doing things like rounding off all the screws on your bike, or filling them with epoxy. Good idea until it breaks and you can't remove it.
The safest place for your bike is under your legs, short of that, by your side. At least within your sight. Locks, no matter how nice, will only help so much.
Step 1: Evaluate your bike
If its not made out of steel or aluminum, its likely worth a lot.
triple butted anything, expensive
Carbon fiber anything, expensive
If it even thinks words like 'Campy' or Dura-Ace, its worth a lot.
Anything handmade (you don't count)
If your bike really is worth that much, and not just to you, the best and only way to ensure it doesn't get stolen is to never let it out of your site. Take it into your house with you at night and keep it next to your bed.
Otherwise you will probably be fine leaving it outside overnight.
Then again, if you couldn't bear to part with it, inside is always best.
Step 2: Protection
In general, the more you pay, the better it is, a wonder that free market system of ours.
For the most part, a u-lock is enough, but if you want to be really safe, a separate cable lock provides the most protection when combined with a U-lock. Then again, if theft in your area is so high that you need to do this, consider taking your bike inside.
Step 3: Actually locking the bike
The easiest way to do this is to put the u-lock around the rear wheel inside of the rear triangle. This is effectively locking both the rear wheel and the frame. The wheel can not be removed from the frame, regardless of the amount of jumping up and down it can sustain.
If there are bike racks, use them, you can almost always lock more securely to a rack than to a street fixture. There is also the safety in numbers. As long as your bike is surrounded by bikes that are easier to steal, its somewhat safer.
Alternatively, bring it inside with you. Much more secure than any lock.
Step 4: What not to do
Warning: the following pages contain images of horrifically abused bikes that more sensitive viewers may find offensive.
Step 5: Do not do this: Not locking to something
Always lock your bike to something immobile, otherwise there is nothing to stop a van full of marauding bike thieves from grabbing your bike, throwing it in the back of their mobile bike theft machine and having their way with it. If the idea of a hoard of ugly men having their way with your precious bike doesn't fill you with fear, well then I'm sorry, i just can't relate.
Step 6: Another do not do this: Not Locking at all
Step 7: Do not do this
Step 8: Don't Do This: Ignoring the first step
Step 9: Trying to make your bike unridable
Fixed gear riders advocate fixed gear bicycles as a method of this, that they are somehow more secure because they are harder to ride. They are forgetting that due to the unbearable popularity of fixed gear bikes, they have become incredibly attractive targets for theft.
Step 10: Camouflage
This myth is so prevalent that even major bike manufacturers have taken to making intensionally ugly bicycles. Please, a bicycle should be a thing of beauty, make the madness stop.