I'm a fully home based worker and I love it. There are a few things you really need to do to ensure you can nicely separate work and leasure time though.
Most important is to have a single room decked out as your office - preferably not used for anything else - this allows you to relax when you close the door at the end of the day, you've left work; if you don't do this, the temptation to 'just to half an hour on that big project I need to get finished' gets too much and you end up spending more of you free time working that you did when you commuted. You also tend to get more done when shut away from distractions (watching daytime telly whilst 'working' on your laptop, or working from bed). Proper office furniture is also a must - it has to be comfortable as you're spending a full working day in it.
Educating wife/S.O. that just because you are home doesn't mean you aren't working is also essential, otherwise (as others have said) it's assumed you can do odd chores which end up turning into huge lists of things that need doing. My wife still thinks that I live the life of riley at home each day doing nothing much, which couldn't be further from the truth!
The last thing is to make sure you still get people contact outside of your domestic setup - go to the pub with friends, take part in sport/other activities - otherwise you'll get cabin fever. Putting in an appearance at the office is also important as teleworkers can often be 'overlooked' as they aren't seen about even if they are completing projects successfully.
All in all, I wouldn't trade my home working in for anything, it's great that I spend the morning with my son before he goes to the childminder (wife leaves at 6:30a.m. as she teaches 16 miles away and likes to get in early to do planning work) and the flexibility it affords is fantastic.
Just think, if more people telecomuted the country grinding to a halt with the snow wouldn't have affected the economy so badly! Less cars on the road would also be good so that the rush hour become less of a nightmare for people who, for whatever reason, cannot work from home.