I use CVS source control to keep on top of version changes to modules I use in various drupal websites.  It makes upgrading easy, since all I have to do is use a one line instruction to get the latest version of a module.

Because I also like to write my own modules, and contribute to the development of modules, I have a particular strategy that I use to keep things organised.

If I am checking out modules that I have no intention of ‘hacking’ I check those modules out into my sites/all/modules directory.

If I am checking out a module that I am likely to want to work on, I check that module out into my sites/default/modules directory

By doing this, I know which modules I can touch, and which modules I need to treat like core code (ie don’t make any changes)

CVS makes it easy to create patches which you can then submit back to the community for inclusion in the repository.