I use them quite a bit. I have media spanned across multiple drives, eg. some videos, on drive D: others on E: or elsewhere, mp3's in an old mp3 folder. You can go to the properties of the each library and put in which folders you want it to show. So in the videos library I added my video locations and removed the default. Did the same with the other libraries and now its totally customized to my setup.
FYI: I keep all my user data on a second hard drive separate from the OS (My Documents, pictures, etc). This way if the OS gets hosed I can wipe that drive and all my stuff is saved. Added benefits being that an OS swap also doesn't require major headaches in restoring data