Yes, it’s kind of a frugal but interesting way of working ;)
But when I work I need to like the medium on which I’m working (ie: html editor …). With only the notepad, it would be really, really dull and I think it would become a chore more than a pleasure ^^
I had a little money to spend, and here I got very nice tools for a few hundred bucks.
But your right on one point I think: trying to do most (if not all) of the graphics with CSS. It’s a nice challenge and certainly a very good method !
Oh, and remember that I also do print work, so no CSS here ;)