I always expect CiscoGuy to jump on these posts since I think this is one of his all time favorite questions to answer. Guess I get to beat him to the punch on this one.
Take a look at Wendell Odom's blog. He did a posting a while back on LAB setup. Granted, mostly for CCNA, but this still can be a good foundation for your NP lab.
GNS3/Dynagen are good, but like RossHoskins points out can be tempermental. Plus, I don't think it does any of the switching justice. Not to mention that you have to come up with the IOS images.
Ciscokits.com is a great place to start, but don't forget about Ebay. Of course, on Ebay you have to be a little careful, but lots of people have had good luck building out there labs from there.
I did my CCNP with some 2500/2600 routers, and 2950 switches. Can't do everything with the 2500's, but worked great (and are cheap) for just an end router off of a frame-relay scenario. I know some other folks were using 3640 series (I think, been awhile now) and were really loving those routers because of all the different modules available on them.
I do recommend getting a small rack to mount everything in. I picked up a small ~25U rack, and put it on a base with wheels so I could move it around as necessary. I also got a 24port patch panel, and punched down a couple ports to be T1 cross-overs. That way I just had to have straight thru cat 5 cables for T1 connections.