Seeing how this is the FAQ, and free software has got to be a FAQ, I figured this was a good post to have here.  It took a bit of research to find all the tools that I need to get started without cost and be happy with them. If someone had taken the time to put them together I would have appreciated it so I figure I'll pass along what I have found.  If anyone else knows some good free stuff, feel free to pass it along too.

Please note that this software is freeware or opensource, not "free to try" or a demo so keep in mind that there may be better tools out there, but untill you're ready for a serious monetary commitment this is a good place to start.

 2D Paint programs- Let's face it, you're gonna need sprites and backgrounds and MS paint isn't that great.

My solution was Paint.Net: http://www.getpaint.net/index2.html

I'd check out the forums here in the tuts section: http://paintdotnet.12.forumer.com/viewforum.php?f=15&sid=edac08ddbb51472183ba642cb8b56afe for some examples of what's possible to do fairly easily with this program

 3D Images and Models- You want to do 3D?  You're gonna need 3D models.

Of course you can go here to for some free 3D models http://www.turbosquid.com/xna which you could have found here at creators.XNA under Resources->Partners but just incase.......there ya go

To make originals I'm using Blender at http://www.blender.org/  It's a good opensource 3D program with a lot of tuts and community.

edit: Deleted Milkshake since it's a trial version

 Music and sound - probably the most frustrating thing of all for me due to my background (music ed)

I finally settled on Finale Notepad at the website http://www.finalemusic.com/notepad/.  I went with it because of the use of Notation as a method of input.  The playback option isn't great but it's free.  It'll get you some basic music for you games at the very least.  Note that the Notepad is free for download and use.  Their other, more featured options do cost (quite a bit) though.

For sound fx and editing you might want to try Audacity at http://audacity.sourceforge.net/ .  It's good for mixing tracks, sounds etc to tweak them to your needs.

 So there you go. 2D, 3D and sound software 100% free.  Everything you need to make a full fledged game.  Definetly not a be-all-end-all list but it's everything that you need (along with GSE and XNA of course)

Finale NotePad isnt' particularly useful since you can't export in any format that is useable with XNA. It only supports .MUS format. I suppose you could capture the playback with a sound capture program, but that's a pain.

I've been a long-time user of NoteWorthy Composer and it suffers the same problem as far as XNA is concerned. It only supports .nwc or .mid files. However, I just found SynthFont, which is a free tool to convert .mid files to .wav. Haven't tried it out yet, but it looks like it could be just what the doctor ordered.

NOTE: NoteWorthy Composer isn't free, but at $39, it's a pretty cheap and feature-rich notation package.

ProfEclipse:

a free tool to convert .mid files to .wav

If that's what you are after, there is also Timidity++.

Buzz is a good music/effects package that has been around for a while. It uses software synths and effects so you can make something that doesn't sound like a GM chip. It uses a tracker style of data entry.

http://www.buzzmachines.com/
 

You could put nVidia Fx Composer, which I'm using for my .fx files.

You can download it from www.nvidia.com

Yes, it is absolutely free of charge.