Wipe Mac OSX and reinstall for resale

Question

The theory is that I want to sell my mac at some point and erase all reference to online banking, passwords, security codes, and any hidden software errors that may exist before I hand it over to the next owner. Bear with me cos I know this is a very common question BUT im quite confused.
Ive read talk of carbon copy programs boot discs etc argh. is it really needed.
Basically this is the stage i can get up to then somone fill in the rest?
Right using Backup from .mac I'll back up all my Home Folder. Im also doing a full drag and drop copy of the home folder to an external hard drive to have a non compressed or archive backup.
Next, do i need to use the disk utility OR do I need to just insert the OSX disc and follow the prompts? Im thinking I want to install the OS on a clean hard drive you see rather than just copying over the other...
Ok thats as far as I have got.

Answer 1

Step 1: Backing up current machine
If you want to retain a backed up version of your machine, then use something like Carbon Copy Cloner, SuperDuper!, etc. to make a bootable backup/clone onto an external, bootable HD. That allows you to use the Migration Assistant to transfer your stuff to a new machine.
Step 2: Preparing the machine for sale
This is the way I prepare old machines that came with OS X installed, which allows them to act just like one from the factory. First, boot with the Apple Hardware Test disk that came with the machine, run the extended tests, and make sure everything passes. Then, boot with the restore disk that came with the machine (holding down the C key until you get a screen), erase and zero the HD. When that's finished, reformat it Mac OS Extended, install the OS 9 drivers (if the machine can boot into OS 9), and then restore the software.
When finished, click on the restart button, holding down the CMD+S keys. This puts the machine into single-user mode and gives you an Unix command line terminal screen. When the text stops scrolling, type in this command and click the return key:
shutdown -h now
This shuts down the computer; the next time it is turned on, the Setup Assistant will appear and the new user will get to personalize it. This also alleviates the necessity of presetting any display parameters, internet and e-mail settings, etc. As long as the monitor can hook up to the machine, the OS will select a usable resolution and the user can use the Display prefpane to suit their needs. They'll also have to run Software Update and bring everything up to the latest version.
BTW, include all the software disks and manuals that came with the machine.