It does work, but it's a little messy because it's three different things.Maybe restore sucks b/c you either can't back up your files properly or you don't know how to set restore points? I've recovered 100% of my stuff when I used to use it. Now I just back everything up to a 2nd hdd and leave it at that. A lot of people claim "X" sucks b/c of "Y", yet usually don't use the stuff enough to figure out how to properly make it work.
First, there's System Restore that creates restore points when you install apps and such. It's great, when it works (I've seen a couple of really botched restores in my time), but where is it? It's under... Start > All Programs > Accessories > System Tools. Would your grandma look there? Probably not. But her hard drive will get filled up with gigs of old Restore points, and to spring clean the attic you have to go Start > All Programs > Accessories > Disk Cleanup, click past some dialogs (hello UAC), watch a progress bar for up to a minute, click the More Options tab, and only then can you clean out all Restore points except the most recent one. But if you do, you will also delete all Shadow Copies of your files.
Then there's Backup. It's fairly easy to set up, but lacks a lot of options and chooses the files to back up quite arbitrarily. It misses some stuff and makes totally redundant backups of other stuff.
Finally there's Previous Versions, a.k.a. Shadow Copies. Right-click on a file or folder and go into the Previous Versions tab, then restore to an earlier date. I've found it very useful many times, but it's hidden in a place where most general users would never look. Plus the shadow copies are on the same drive so if that drive goes, so do the copies.
Here's the Microsoft problem again: The background technology here is quite clever. Especially Previous Versions. To save disk space, it backs up only the parts of the files where data has changed. If you have some big bitmap and edit one pixel, Shadow Copies will back up only that pixel and combine it with the most recent file if you decide to revert to an earlier state. But the implementation from a UI perspective is lame. Apple's background technology on the other hand is very neanderthal, Time Machine just backs up the entire files with no compression so you need a goddamn 1 TB backup disk to get anything out of it... but the UI is fantastic, both intuitive and cool, which means that people end up actually using it. Just like the iPhone, it does things that have been done a million times before. Every goddamn smartphone has a web browser. But it wasn't until Apple came in and did it right, that web browsing on smart phones went from being used by 15% of the user base to 90+% of the user base.
I wish the two companies got along better so we could get the best of both worlds, but alas...