Drive firmware I only install if I'm having a problem. Same goes for optical drives (if I'm getting a bunch of coasters or something).
Generally I run the newest versions of many drivers on my systems, though I tend to only update once every 3 months or so when the mood strikes me. This mostly applies to video card drivers and motherboard/chipset drivers though, which is where you often see fixes and improvements in performance. Same goes for Motherboard BIOS updates -- though make sure to backup your old BIOS to a floppy disk before you update (hard drives can sometimes become unreliable if you end up with a bad BIOS update, so Floppy is always safest). If you don't have an "enthusiast class" motherboard though, and the BIOS update release notes don't seem to contain "general improvements" or things that apply (a lot of times they just add new CPU support -- which you don't need unless you buy a new CPU), then don't even go there.
For most other things it's the old addage... If it works, don't fix it.
Especially if you have a Creative sound card. I've spent days trying to re-fix my sound card after installing "updated" craptastic drivers from Creative...
How do I know what's available? Well... I'm a nerd and I pay attention to a lot of enthusiast sites that post announcements when new driver versions come out. I also just check every so often with the vendors of my hardware. Some are easy (like ATI) and they release a new driver every month. Some are random (nVidia) and but I usually hear about it when a new version comes out...