I draw on paper with standard ballpoint pens from the dollarstore. Sometimes I'll use a mechanical pencil for doing the basic posing and stuff first, but lately I'm just doing it all with pen.
As for colouring, I use opencanvas 1.1, it's somewhere between mspaint and photoshop. The newest opencanvas is way too complicated and is pretty much a photoshop clone. I like keeping my programs simple 3nodding