Hmmm. "Favorite" rewards program? I voted for the ones I have, which is not necessarily my "favorite". I haven't been so anal as to investigate every one of them.
Suffice to say, the Westpac Altitude Rewards program effectively gives me something for nothing. The card is free with my home loan, I pay off the balance each month, which lets me keep money in my offset account for longer, and over the course of a couple of years I'll probably earn enough points to get a DVD player or small TV or something.
The one thing I do like about Altitude is that all of the redemptions are based on a strict points-per-dollar formula. $100 is 12,500 points. Doesn't matter if you are redeeming points for a hotel stay, a DVD player, a TV, if the cost is the same the points will be the same. I contrast this with Flybuys where, for a while (not sure about these days), some redemptions were "better value" than others.
Having said that, I agree that it's a tool be used judiciously. I BPAY pretty much everything I can (gas, electric, phone, council rates, water rates etc) through my credit card. My wife puts all our groceries on it. We put petrol on it. My Citylink Toll Account direct-debits from it. My Health Fund direct-debits from it. My internet provider direct-debits from it. etc etc.
All of the above are run-of-the-mill day-to-day expenses that are effectively non-negotiable anyway. There is no "discount" for cash etc available.
When it comes to other major purchases (like I bought a new mountain-bike a few months ago), I will negotiate the price and see if they'll then accept the credit card at that price. If not, I weigh up the benefits of the interest free period and the reward points versus the additional savings I might make paying cash.