Minimum Hardware Requirements:-

Applications type	Processor	RAM (Memory)
Windows Applications / Windows Service	Pentium 90 MHz+	32 MB+
ASP.NET Web Pages / Web Services	Pentium 133 MHz+	128 MB+

1) Download the .NET SDK
First of all you need to get the .NET SDK Final, its 131 MB from
[http://msdn.microsoft.com/downloads/default.asp?url=/downloads/sample.asp?url=/msdn-files/027/000/976/msdncompositedoc.xml ]
for free! It contains the .NET Platform, the command-line compiler of C#, VB.NET and JScript.NET, developer tools, the .NET Reference Documentation as well as a lot of sample applications. Yes that's a huge download and there are no short-cut's (other than buying some magazines that contain the SDK). On a poor 28.8k dial-up line it might take up to a week to finish the download. I would recommend the use of download assistants like Gozila, Download Accelerator etc. to help you download the the huge file.
In case you just need to install .NET on a Client's machine or just run ASP.NET (no development) then you do not need the full .NET SDK, you can download a much lighter (19.7 MB) redistributable version of .NET that similar to the full SDK less the documentation and developer tools.
Meanwhile lets prepare your computer for the .NET Platform.

2) Choose the Computer
If you want to do some serious development in .NET then the System Memory (RAM) should be minimum 128 MB, 64 MB may work, but 32 MB and lower might kill your system! To compliment the RAM you need a good processor, at least a Pentium - III. Windows XP Professional and Windows 2000 are the recommended system followed by Windows NT, but the SDK might work not Win98 and Win ME so you can only install the .NET Redistributable on these platforms.
Please note that Windows 95 is not supported at all!
Also creation and deployment of ASP.NET and Web Services are not supported on Windows 98, Windows ME, Windows NT and Windows XP Home edition.

4) Web Server
If you plan to run ASP.NET or Web Services on your computer then its essential that you install the IIS 5.0+ before hand (ASP.NET does not work with any other web server at the time of writing this article.) with FrontPage 2000 Extensions installed (you can download FrontPage 2000 extensions from http://download.microsoft.com ) . Since, if you need ASP.NET afterwards you will have to reinstall the .NET SDK again. Remember that ASP.NET is currently only supported on Windows XP Professional and Windows 2000.

3) Latest Updates
A personal very important advise, please install the latest updates available for your operating system. Service Pack 2 on Win2000, Service Pack 6a on WinNT and other system updates for other Windows flavors is mandatory, try the "Tools menu -> Windows Update" from the Internet Explorer 5.0+ to get the latest updates for your OS.
Also you will need to install Internet Explorer ver 5.5+
The Data Access components should also be upgraded, so install the MDAC v2.6 above (Microsoft Data Access Components) (MDAC v2.7 is needed incase you are using ASP.NET) the latest version for your operating system.
You might also have to update the "Windows Installers" to version 2.0 or above (available from http://download.microsoft.com).

I have seen many people who have downloaded the full .NET SDK, but the SDK does not install giving a error Program too Big to Fit in Memory! and terminates even though the user has lots of RAM and HDD space free. The solution to this problem is simple, UPDATE your operating system with appropriate patches first! Plus you could use some utility like WinZip to manually extract the .NET SDK files and then run setup from the extracted files.
People keep asking me what's the relation of service packs and IE with installing the .NET SDK. The answer to this is simple, these components help to update all the vulnerabilities of your system. As for more information read the MS site. (That could make a more bigger download than just the 131 MB SDK, but hey remember I did not make .NET, right !)

4) Install the SDK
By the time you have installed the latest patches and updates you might finished downloading the SDK. So go ahead and install the SDK. If you have taken the above steps seriously then the installation should be smooth without any errors.  

5) Read the Quick Starts
After installing the .NET Samples you can view the QuickStart's for Win Forms and ASP.NET from "Start -> Program -> Microsoft .NET Framework SDK -> Samples and QuickStart Tutorials". They provide really good information if you know programming.
Note: You will first have to install the QuickStart samples from the same page given above.

6) Read the Documentation
The documentation has some very good articles and examples along with the complete .NET Framework Class Library reference, so go through it. You can access the reference documentation on .NET from "Start -> Program -> Microsoft .NET Framework SDK -> Documentation".

7) Write your Programs and Run them
Need I tell you about this too ??? Enjoy .NET Programming ...