Check out this article by a promising young writer on whether freelancers should incorporate or not:

Tax time is upon us but the very harried and helpful Howard Samuels, CPA and the lead partner in S&C LLP, a NYC-based public accounting firm (and sometime mediabistro tax advice teacher) has some advice. It turns out that incorporating is not for everyone. First, it's required that if you do form an S Corporation or LLC, "single member LLC" (which offers you the appearance of a company but is still just a sole proprietor for tax purposes) or partnership, you no longer can just hold onto your receipts, but need to keep an "accurate set of books and records," which for many means hiring a full-time bookkeeper. These are only some of the expenses that go into incorporating. "I recommend if you live in New York City that you have a least $80,000 of net profit to financially benefit," says Samuels. The $80,000 mark varies from state to state but the message is the same: You better have a serious, profitable freelancing career with a future in order to make forming an s corporation or partnership worthwhile.

Of course, you don't necessarily have to go it alone. "A sole proprietorship can make it hard for a freelancer to get certain things such as small business insurance," says Duy Linh Tu, who teaches a course on starting your own business for mediabistro. "But, under New York state law, you have to have at least two people to form an LLC. A lot of health plan providers require that the business have at least two people. Also, a sole proprietorship doesn't give the freelancer the same kind of legal protection that an LLC does (in terms of lawsuits, etc.) Freelancers get together all the time to form LLCs. For example, in the web business, a designer might get together with someone who knows how to program. Or a writer might get together with someone who can do business development in the ad world. It's very simple to form a business. You can do it in about 20 minutes online and there are lots of services out there to help you." A cursory Google search finds sites ready and eager to help like Bizfilings and Quick Inc, which help you set up and choose a name for your LLC.

More here. Meanwhile, Steve over at UnBeige has a post about one man's experiences starting his own small business.