Everything starts as a sketch. I like control over detail so I'll usually go with pencils and/or watercolor, maybe touched up with ink for traditional work. Mostly I scan my sketches (or just take a shot with my phone) and then trace them on my Mac with Adobe Flash. Most of the time, Flash is all I need, but I also enhance illustrations with Illustrator & Photoshop, especially if there are print requirements beyond Flash's capabilities. Occasionally, I work with Inkscape or GIMP.
Most of the time, Flash is all I need...
Wait. Flash? Just for Drawing?
Sure. For many years, I was a total Illustrator snob. I even hated Flash's drawing API and would do all my design in Illustrator and port that over into Flash projects (Not so smooth a process when Flash was still Macromedia. I started of with Flash version 2 in 1997 after using Director for a few years before that). Over the years, Flash's drawing tools got better and I began to realize there were some time-saving techniques you could do in Flash, especially for getting an idea quickly traced and fleshed out. I now use it to draw and refine everything. I was worried about what Adobe would do with it when they took it over from Macromedia, but they've only made it better as far as integration with Illustrator goes. Even if a project ultimately requires Illustrator, I usually get the brunt of it done in Flash first.
Inkscape & Gimp
While I'm very proficient and comfortable with Adobe products (I've been growing with them since Photoshop 2.5 and Illustrator 88 in 1994), I've been working a little more with Inkscape and GIMP. Initially, I did some projects in these programs as an experiment - it's good for the brain to have to adjust to a new environment and see what emerges from having to problem solve with unfamiliar tools. Lately, I've found a few tasks I do can be done faster in these programs. Even via X11 on my mac, Inkscape and GIMP load up and run very quickly using very little of my system's resources.
I also appreciate that these apps and their development communities are out there and available so that anyone, regardless of income, can use these tools to enhance photos and create great illustrations and interface designs. I do some work with oZoopa which provides professional quality open source design templates so, of course, I provide any work I do for that project in these formats. Not to mention, the geek in me LOVES being able to make a minor line or color tweak to an illustration via a basic text editor (Inkscape is an SVG editor, under the hood, it's all very simple and clear XML). It doesn't get much cooler than that!