STEP 1: Factory Data Reset (optional, but recommended)
You may feel more comfortable completely wiping your phone and starting from scratch. This will help with the NAND backup later if you choose to have a fresh safe IMAGE (copy) of your phone in case something happens when you FLASH a ROM.
Menu > Setting > SD & Phone Storage > Factory Data Reset > Reset Phone > Erase Everything
STEP 2: Format SD Card (optional, but recommended)
There is always a possibility of some random errors with changing the internals of your device, and there are times when the SD Card plays a roll in some of the hiccups. So Formatting the SD Card is recommended.. REMEMBER do save any Pictures or Important Files!
Menu > Setting > SD & Phone Storage > Unmount SD Card (then) Format SD card > Format SD Card
(NOTE: If you do not choose to format your SD Card, then you can simply Unmount It instead.)
STEP 3: App List Backup (optional)
Download an application called App List Backup from the Market.
It will save a list the currently installed applications from the Downloads section of the Market and save them to your SD Card.
After you reinstall the application from a Factory Reset or a Wipe, you can load the file and the Market will have all of your previously installed applications ready for you to download back onto your phone. Saves you a lot of time from writing them all down, then finding them, and re-downloading them all over again.
Also, you know how some applications like Titanium Backup save a backup of the actual .apk in the SD Card, then it installs them back onto your device, but you still have to go through every application and re-download them so you can receive updated? No more. App List Backup will do all the leg-work for you!!