Whether backing up everything simplifies recovery depends on your recovery strategy. When I recover (be it a server, laptop, phone, whatever), I usually re-install the OS, then re-apply my configuration, applications and data. Applications are a little different, but I backup my data and config files *only*. (I actually also back up a log of installed applications). I re-install the applications (because copying files doesn't necessarily recreate the installation environment), recover my configuration and data files from backup, and I'm back online.
Regardless of how much space you have, a full system backup may not be all the useful, will take longer to backup (and recover from), and will wear out your disks/media more quickly. In the event of catastrophic failure, you're going to have to install some sort of operating system so you can access the backups: the OS backup is pretty much redundant.
Perhaps the easiest way would be to find a backup system you were comfortable with, and let it guide your recovery procedures. I used to be a fan of "Back in Time" on Linux, but there are plenty of options out there.