For graphics:
MS Paint
The GIMP <- Can't afford that Photatoshop stuff...
For coding:
Notepad <- Both CSS and XHTML
Another thing I recomend is the Web Developer plugin for FireFox. Very, very useful tool. You can swith between different CSS stylesheets, easily validate your HTML and CSS amongst several other things. You can even see if IE7 will enter Quirks-mode.
Get it here:
https://addons.mozilla.org/en-US/firefox/addon/60