Personally I use Dreamweaver MX 2004. I like its syntax highlighting, quick help (you enter a function and it gives you the arguments), abilty to search and replace across many files, and SFTP integration. I also like that it generates pretty clean HTML code. In the past I used Topstyle Pro to edit HTML and PHP, and I still do sometimes. It's very fast and its HTML tidy integration is killer.
I have a local apache/php/mysql installation on my laptop, but for most of my debugging I just have it upload via FTP when I save, and then test everything on this server, which is LAMP. To interact with the WordPress repository I use TortoiseCVS.
What do you use and love?