For digital design I would use either Corel Painter 11 or Photoshop CS5. Why CS5? The painting tools! They work extremely well and make great effects. I've never used Corel Painter 11 personally but I've heard that it is really good although people have reported design flaws in the software.
On the free end of things I have three programs that work decently. The first is Paint.Net, its an allover good paint program. The next is GIMP. It is more like photoshop as it is for General Image Manipulation but it still has painting effects as well. The final option is a rather obscure program, in fact I would doubt that very many people in the world have ever heard of it. It is Project Dogwaffle. The brushes in it act like real paint and the blending is extremely well done, especially for freeware.
Whatever program you use, Vector Magic is a very good software for tracing and vectorising. I can't remember if it's free or not but there's a free online tool if I remember correctly.