I use Adobe Photoshop for much of my 2D work, as well as traditional pencil illustration.

Hardware-wise I use the fastest PC I can afford, and a Wacom Intuos 3 Graphics Tablet to draw directly into the computer, or to modify traditional pieces.

I paint in Photoshop at a resolution of 4000px or larger. I start with a detailed lineart sketch and then begin painting in solid colors for each element of the picture. After clean solid shapes have been painted, I then start detailing each element individually.

For sketches, I use a mechanical pencil (which I now consider indispensible), and diverse photographic reference material for skin tones and anatomical forms.