The Live Trace feature introduced in Adobe Illustrator CS2 works great in many situations for converting bitmap images to editable vector artwork. But when Live Trace doesn't give you good results, or you have difficult-to-trace artwork, here is an alternative.
VectorMagic, a Web site produced as a result of a Stanford University Artificial Intelligence Laboratory research project, allows you to upload a bitmap image to the site in JPG, GIF, PNG, BMP or TIFF format. Next, you answer a few questions about the file, the file is traced, and a vector EPS file is returned to you. In many cases, the results are superior to Live Trace, especially when tracing small, low-res images.
(Thanks to Chuck Green's excellent blog for the head's up on this amazing resource.)