I use a Kensington stylus/pen combo that works really well. I've used it (or previously a Boxwave) almost daily for the last year to take notes.
I could easily type the notes with either the on screen or an external keyboard, but I find I retain the information more if I handwrite my notes.
I've tried almost every note taking app in the store. My personal favorites are NotetakerHD and WritePad. Notetaker has the smoothest zoom to write function (write large in a box at the bottom of the page and it's written small on your file) and I use it when I know I'll need a combination of text and graphics. You can then email a PDF to Evernote for organization.
WritePad has the best handwriting recognition feature. WritePad also just incorporated full 2-way Evernote sync, making it a great tool for taking text only notes.
EDIT: when looking at styli, don't be disturbed by the "giant" rubber tip, the iPad is looking for a larger contact point and any good writing or drawing app will let you control the pen size. However, one thing I've noticed is that not all rubber tipped styli are equal...some don't glide across the naked iPad screen, some are too bulbous and just fold over in a way that the metal shaft can run across your screen, etc. Boxwave, Kensington and Griffin are all pretty good quality.