For perfect performance the mirrors of my Meade LX200 f10" f/10 telescope must be perfectly aligned (collimated) especially since I am an imager: images should be perfect.
First I replaced the hex collimation bolts with Bob's Knobs: I consider this an absolute MUST as the hex bolts are akward to use.

I collimate WITHOUT the diagonal, as the diagonal only introduces an extra source of error: the diagonal itself might be out of collimation.
I do not collimate with an eyepiece, but - as an imager - I use my webcam in prime focus.
As software I use K3CCDTools (see my Software page) and then by looking at the live video feed on my laptop screen I immediately can see the effects of the collimation adjustments I am executing.
Please note that the collimation adjustments should be made in VERY tiny steps, when fine tuning maybe just a (fraction of) a millimetre.
For perfect collimation you need perfectly stable clear skies; as these are rare try to do the best you can and wait for that special night to perfect your collimation.

Start with a bright star and after defocusing the star, put a pencil in front of the lens pointing at the center from the outside edge. Move the pencil around the circumference of the lens and watch the shadow move around the diffraction rings on your screen. When the shadow is across the thinnest portion of the diffraction circle look at where the pencil is pointing. If it is pointing directly at a collimation bolt then that is the one that needs adjustment. If it is pointing between 2 bolts, it is the third bolt on the opposite side that requires adjustment.
Use a real star and not an artificial $$$ one

Here is a screen print of my collimation results.

This is a screen print showing my collimation result on January 23, 2006.
LX200 f10 inch f/10 telescope; Vesta SC3 b/w webcam; no diagonal; Baader Infra Red Blocking Filter.
This result is pretty close to what I want to achieve.
The reticles of K3CCDTools help a lot in getting a nice round symmetrical defocused star.
Collimating with a webcam gives the possibility to study the results later.

Recommended collimation links:
Thierry Legault