Step 2: RaspberryPi Configuration
I recommend Raspbian, simply because I'm a Debian fan, and Raspbian is Debian, but optimized for the Pi. If you already have a preferred distribution, great. Use that.
One thing that I do not like about the Pi is the lack of a heatsink over the CPU. I don't care what anyone says about passive cooling, something about a CPU without a heatsink on it really, REALLY bugs me. So go ahead and slap a tiny heatsink on your Pi's CPU. I used a RAM heatsink from a pack of a bunch of them that I got at Microcenter. This is ironic, since the Pi's RAM is on top of the CPU. Anyway.... some folks are putting heatsinks on other chips, which isn't a bad idea. I just happen to be bothered by the exposed CPU. Plus, the heatsink does get hot during operation. So it's definitely doing something.
I then connected the WiFi dongle and my keyboard's wireless dongle to the Pi, and put it in the cell phone case. I rested the Pi on a part of an anti-static bag, just to avoid shorting anything out.
NEW 11 March 2013: I'm now using a 3D printed case for it. The cell phone case offers the same features, but this printed case is a part of my transition to a slimmer and even more portable version I'm cooking up for the future. This case is simply thing 33694 from Thingiverse. with a belt clip, thing 39983, hot-glued to the bottom.
I have also swapped out the blue aluminum heatsink for a copper one, but that's not necessarily any better than the aluminum one since the Pi only produces negligible heat.