Our school is an Engineering/Design school and as such we have access to Adobe CS3. So when we built our website it was a combination of Dreamweaver CS3, Illustrator and Photoshop.
If you don't have access to Adobe products a great alternative is Notepad (like everyone else has said) but instead of MS paint you can use Gimp
http://www.gimp.org/
Gimp is attempts to be a freeware version of photoshop. Granted it's not the best but it's great for what you pay for (nothing!).