Thanks guys.
Shawn, to answer you question this particular image was shot with a tilt/shift lens. Instead of rotating the camera between shots, I shifted the lens. Then I used the "reposition images" option in Photoshop's Photomerge plugin. I call this a "flat" stitch since it's not put together the same way as a traditional pano.
When using a regular lens and rotating a camera, you don't necessarily need any special gear but it can be helpful. You want to get the tripod as level as possible, so that when you rotate the camera the images don't end up slanting down in one direction or the other. Having a leveling base on your tripod can make this easier, but you can also accomplish the same thing by adjusting the legs to get things as level as possible.
If the scene you're shooting has both foreground and distant objects,
parallax errors can be a problem. The fix for this does require some special gear, you basically need some sort of rail or clamp that allows you to rotate the camera on the same axis as the entrance pupil of the lens. Today's software is getting pretty good at correcting parallax errors when there's enough overlap; but avoiding it in the first place gives you a better chance of getting a clean stitch.
Really Right Stuff makes some specialized pano gear that can address this as well as making multi-row panos easier to shoot. Another option is the Nodal Ninja. But I wouldn't worry about specialized gear at first; depending on what you shoot it may not be necessary. You can always upgrade later if you feel the need.
Make sure when you rotate the camera you have plenty of overlap between shots, the more overlap you have, the more room the stitching software has to fix any problems along the seams.
As far as software goes, there are lots of options, and they keep getting better and better with each new version. Photoshop CS3 and CS4 have gotten much better at stitching, although they still lack the flexibility and control that some of the dedicated programs have. There are lots of standalone programs that are very good at stitching. Autopano Pro and PTGui are two of the most popular. Hugin is a popular alternative that is open source and free of charge. PTAssembler is also pretty popular, and is more affordable than some of the other commercial programs. There may be others, but those four are the most popular.