Image your system with free Macrium

I'm also assuming that 'Copy selected partitions' is now called 'Image this disk'

There you have to watch out. If you have several partitions on the image, make sure only those that you want to restore are checked in the little boxes under the partition.

Yes, you can do all the things you asked about. You can recover from a bootable Linux DVD or a PE Rescue CD or USB drive. What it means by recovery from the boot menu means there is no recovery partition you can boot into when Windows starts. You can also mount, VHDs, recover files from the mounted VHD. It is very highly thought of my most here on Seven forums and widely used. This may help answer some of your questions. Imaging with free Macrium

Some imaging programs create a recovery partition which you can boot into when Windows boots. That's what they mean, that is not supported. What you do is create a recovery CD or USB drive and boot into that, just like the Windows Rescue disk. I'm sure about the VHD files being able to be mounted, explored. I am not sure about restoring to a smaller drive, but I believe it can. When it does the image, it only images the used portion of the partition. So, I see no reason it can't restore to a smaller drive as long as your partitions on the smaller drives are larger than the image (used portion it was created from) It can also clone a partition.

The macrium boot menu thing just means you can boot up the macrium winpe from a boot menu entry.

( Essenbe is right that a few imaging programs can make recovery partitions, Acronis and paragon for example, I can't see the point ).

The idea of the boot menu entry is you don't need to carry a flash drive with macrium winpe on it. The downsides are

a) It might not work, if windows boot process is damaged ( which is quite often the reason you want to restore)

b) You will always get a menu for few seconds on startup, which can be quite annoying. ( unless you are multibooting, where you will have a menu anyway)

There are several free imaging programs . They will all be able to restore to a smaller drive and let you get individual files out of an image.

They will all create boot media of some kind to be put on flash/dvd. Many of them do not create the boot menu thing, instead they can reboot themselves into what they often call pre -os mode. That also means you don't need to carry a flash with you ( but, like the boot menu entry, depend on Windows not being too damaged to fire them up ).

You will definitely need the external boot media they create, just in case.

Paragon do a free one. Paragon paid products are great, but the free versions are quite limited.
http://www.paragon-software.com/home/br-free/

Easeus do one. It has some nice features, e.g. you can see and copy out of the backup images with windows explorer- you don't need to mount anything. http://www.todo-backup.com/products/...p-software.htm

Macrium does a free one. It works well, I used it for a while myself.

Now there is an even better free one. FREE Backup software for Windows 7, 8 and Server 2008 R2, 2012

Why don't you just try it on a small 2GB partition. That will amswer all your questions. And yes, it is the best imaging program around - only AOEMI would be a good alternative.

Read and watch the tutorial and Keith an I have put together and you will get the hang of it - Steve linked it.

- Restore to a smaller HDD (I have a 500 GB HDD with 3 partitons and I monthly make an image of all 3 partitions - so the whole HDD, but there's just about 250 GB of data on all 3 partitions of mine, so if my 500 GB HDD dies, can I buy a 320 GB HDD and restore the 3 partitions onto it without any problems)?

Macrium Reflect can be used to restore an image to a smaller partition as long as the original data is less than the size of the partition it is going to. Even though you can restore your partitions to a smaller HDD, if you can afford it in any way, I would suggest buying another 500GB HDD so that, when your original HDD exceeds 320GB, you will be able to still backup your data on the second HDD.

- Restore from the boot (just like using the Windows 7 rescue disc) without any problems (onto an empty/new HDD), even though it says on the Macrium site that in the free version that's not supported?

The restore from boot you are referring to is an optional feature on the paid versions that will allow you to restore and image without having to use a recovery CD or USB flash drive. When you first boot up the computer, a screen will appear during boot, but before windows itself starts booting, that gives you the option to open up the program that is on your computer that will restore your image. If the drive has been damaged enough that the program can't be opened from the drive, a recovery disk or USB flash drive will be needed. I have the Pro version and use that feature myself because it's convenient (and I'm lazy).

On the free version, instead of a program that can be opened during boot, you have to use a recovery CD or USB flash drive you make ahead of time to restore an image to your HDD. It's not as convenient as having the option on the computer but is more reliable. Even though I use the built in version, I still need the have my recovery USB flash drive on hand just in case I manage to mess up my boot drive badly enough the built-in feature can't be used or I'm using the image to restore to a replacement drive.

If I've confused you thoroughly, just rest assured you will be able to use the free version to restore your data as long as you make a recovery disk or USB flash drive ahead of time.

- VHD files can be mounted, explored, files copied etc. - just like in Windows 7 integrated tool?

Yes.

I apologise for being a pain in the ass but backup and restore is an extremely important thing and I have to depend on it so that's why I'm double-asking.

No apology necessary. You are wise to want to make backups and to make sure you will be doing it correctly.