Norton Ghost 9 does not work on Vista. That's a diagnosis that could have stopped me from using Vista altogether. However, I found that Vista's Backup & Restore center does what it's supposed to, with some caveats.
I skimmed through the Internet trying to find answers to a few questions that bothered me:
1. Is it possible to restore system using Vista setup DVD and the OS image on the external drive?
2. Is backed up image compressed?
3. Is it possible to restore system to a partition or volume of the size that does not match the original OS partition size?
I was surprised to find that information I was able to find on the topic was just derivative from Microsoft marketing material. Here's what I found.
1. Yes. all you need to have to restore your system is Vista DVD and the backup image on any kind of media. Just boot from Vista DVD and then follow the lead of these screenshots:



2. Image is slightly compressed - not nearly as much as Ghost did. Original size was 35 GB, backup image size was 28 GB. I had to upgrade my external backup drive to ensure Vista backups can be handled from now on. Another interesting thing is that core of the backup image is a file with .vhd extension - the same used by MS Virtual Server. I wonder if it will be possible run saved OS VHD image in MS Virtual Server.
3. This is the worst part. Restore completely removed all the partition information on the target drive. My target drive had two partitions: first for the restored OS was not formatted and was larger than original OS partition from which the image was made. Second partition had a formatted volume with some information on it. Before restoration started it asked whether is it OK to delete all information "on drive C:", without specifying what drive C: means. I assumed it's an unformatted partition, because formatted one was present and had another letter. Boy, was I wrong. Apparently what Vista called "drive C:" was actually physical disk 0, thank you very much. Vista's Restore completely re-partitioned the drive to make destination partition of the same size as the original one. This is the most destructive Restore utility I have ever seen. After restoration was over, I had to use Disk Manager's rudimentary knock-off of the Partition Magic utility that allowed me to extend the destination partition to the desired size. Of course, I had to re-create second partition and restore the information from the backup copy. So please MAKE A BACKUP COPY OF YOUR DESTINATION DRIVE before using Vista Restore function!