Good info there. I suggest
1. a router. It's simple, cheap and the best security from the outside world.
2. If you don't want to get a router get Sygate Personal Firewall. It's a learning firewall so it will prompt you a lot at first but it will quiet down. Anything that you don't think should be going in or out just say no. It's fairly simple if you just spend a little time with it.
3. For encryption I like Max Crypt (it's free and strong)
4. For internet cleanup evidence eliminator or window washer but unless you crack them they are going to cost ya. I would pick up History eraser or anything that erases the index.dat files on your hard drive.
5. If you are running Windows 95, 98, or ME don't. Go get yourself Win 2000 or XP.
6. Get yourself a Virus Scanner there are some good free ones at Invalid Link Removed
You really will be all set with all or some of this. Like I said above a router or a well configured firewall is going to keep just about anyone out. No punk is going to try to get through it (if they even can). Proxies are a pain and they are slow as hell IMO don't waste your time.