1) I prefer using the reader over the camera because the reader is usually faster than the camera connection. Also there's less risk of frying the camera with the USB connection.
2) When it comes to transferring files, I COPY, not MOVE the files...this way there's no writing to the card unlike a MOVE command which deletes files as you go...in the case of your computer locking up, or a brownout, you would still have all your pictures on your card and there's less chance of corrupting a card. I only erase the pictures (using the camera's erase/format function) AFTER I make sure they were transferred properly.
3) Format ONLY in the camera. Computers, especially XP, can corrupt cards.
I should add that I haven't lost a picture in two years in following this proceedure.