I use hoods as often as I can, both to block stray light and for protection.
My Sigma 10-20, Canon 70-200 and 135 all came standard with hoods, and the shop threw in a hood with my Canon 17-85 for less than 1/2 price when I bought the lens (but it was still a rip-off for a piece of felt-lined plastic)... All my hoods are bayonet style, and are stored by simply reversing them and mounting them on the lens backwards, so even in storage they protect the barrels of my lenses from scratches and bumps.
The downsides of using hoods? They make the lens bulkier, they take a second to fit and remove, and they make it difficult to rotate a polarising filter or take the lens cap on/off. Genuine hoods are also usually rediculously priced (Canon ones anyway), but still a LOT cheaper than a new lens and competitive when compared to buying a UV filter for protection (please don't buy those ultra-cheap UV filters, they somewhat defeat the purpose of buying good lenses). If your lens comes with a hood though, great! Use it! If you have to pay for one, then try to get the shop to knock down the price for the correct hood for your lens - I think there is a huge markup on these accessories for retailers.
I think in most cases if your hood is getting in your photos then you have the wrong hood (not matched to your lens) or it isn't fitted properly. In reality, the polarising filter issue is the only really annoying one for me, as the times I most want to use a polariser are often the times I most need a hood as well. My Sigma 10-20 lens is about the only one I can rotate a polariser with without taking off the hood, but thats such a wide lens that it requires a very shallow hood that doesn't do much good anyway.
The benefits of hoods? Less chance of obvious flare, better contrast (not-so-obvious veil flare), physical protection for the lens (without *any* loss of image quality), and it will allow you to shoot in light rain/snow (or heavy rain if you have weatherproof gear) without getting water-drops hitting the front element and ruining your pictures (except for really wide-angle hoods which don't protrude much). They should *not* affect your exposure in any way. If you ever find you need to increase exposure when using a hood correctly, then chances are it is the flare being cut out by the hood that is causing the drop in light... and it is a sign that the hood is doing a great job. Be happy about it

Also you can walk around and bump and brush your camera through a crowd (or the bush if you are out in the middle of nowhere) easily with a decent hood, and still instantly take shots without needing to remove the lens cap first. This is really convenient I think. The camera is always ready to shoot.
The alternatives? Many people use a UV filter to protect the lens instead of a hood, and these have their own pros and cons. I used to use this method with my old Olympus, but since I got my first lens with a hood I've been converted. Its not that a UV filter is bad, just that I think hoods are better
I dare say that Julian's recent bean-sack-into-the-lens incident probably wouldn't have resulted in any damage had a properly-fitted hood received most of the blow instead of the front of the lens. :/ Mind you, it was a kit lens... I wouldn't go out and buy an official Canon hood for my kit lens either It would probably cost 1/3 the price of the lens.
And as for when do I use one? well... unless I have a reason NOT to use one (ie I'm using a polariser or I don't want to intimidate people with a bulky camera) then I use one all the time. Its not like I plan when I'm going to scrape my lens against that brick wall, so I assume it could be any time. It just becomes automatic.
But as Adam said... they will usually cause big shadows in the bottom of the image when used with an internal flash, as they make the lens a lot bulkier and will usually block downward light from the flash.

So definately don't use them in conjunction with the internal flash. (a good excuse to get an external flash if you ask me!)
I can't remember any shots of mine that have the hood visible in them though, but there might be one or two when the hood wasn't mounted properly or something.
And Adam, a Sand Groper is a nickname for a West Australian, due to the whole state being built on sand... and yes Atlas, there does seem to be a lot of us here for some strange reason, although technically I'm a Tasmanian import (been here for 8 years though, long enough to call it home now).