Thanks to all for lots of useful suggestions (Score 2, Informative)

Few points are emerging (I am still reading the responses, so pardon me if your comment didn't make it here):

Hard drives based solution seems to be (currently at least) cheap + easy to use for immediate use

DVDs are cheaper for long term storage but automation devices are still not commonly available (plus capacity per DVD is small)

Software RAID is slow for writing but okay for reading data

Tapes may be an viable alternative for long term data storage but the tape drives require an initial investment

Some readers have mentioned "LaCie Bigger Disk". $1199 for 1 TB disk space ... a price to pay for convenience.
Since a lot of you have asked me, now I will explain the nature of my data, its storage and analysis.

I am a scientific researcher working in computational biology. I do atomistic modeling and generate snapshots of protein conformations along MD trajectories. The data is analyzed several times to calculate different quantities. Those of you who do this kind of stuff know that we can collect and store only a fraction of data we want. I generate this data on supercomputers and then compress it (using bzip2 and gzip) to store temporarily and permanently.

The data generated is ususally analyzed within the next month. A good fraction of the data (about 70-80%) needs to analyzed again several times for different quantities in the next few months. In my experience 80% of data is usually discarded after a year of so. Therefore 2.4 TB/year need permanent storage.

So 500 GB at least is required for "daily use", 1-2 TB would be nice to have for intermediate use and over 2 TB will need "permanent" storage.