I use Speech recognition in Windows 7 although not on a regular basis. It has been mostly accurate for me - used for opening programs,emails,skype.
I have a combine "Plantronics" headset and microphone - found/recommended on the Skype Shop/Home Page - click here
I haven't used Naturally Speaking Dragon but it does get good reviews. If you do decide to go for "Nuance" there is a 20% Discount Voucher from "My Voucher Codes" (valid until 23rd Oct) - If not already registered you are only required to provide your email address to do so.