Some versions of Windows 7 include Bitlocker, a utility which allows you to encrypt the system drive. This, however, is of little use to those not running the 'Ultimate' version of Windows 7. There is, however, a free alternative – TrueCrypt. TrueCrypt supports Windows 2000/XP/Vista and 7.
This walkthrough will show you how to encrypt your entire harddrive so that should your laptop be lost, an attacker will be unable to access your sensitive information (unless, of course, you left the laptop powered on!)