I was wondering what other people used to make these banners, medals, and whatnot for their hubs. Some look really good. Right now I'm using Paint.NET and I don't know how great it is. I can't do borders with it to make the medals look good so I'm not so sure about it.
1. What do you suggest is the best FREE software?
2. What do you use?
Photoshop CS5 Extended Version is a good program for that kind of stuff, just make sure you download a portable version then you get the entire program free ^^
Gimp or, which you're already using.
I use Inkscape.
I use Inkscape for many things, and usually do post-production in Photoshop Elements. (I'm still using Elements 3.) Elements is not free but it isn't very expensive for a good image editor, particularly for Adobe whose let's-set-our-prices-to-encourage-rampant-piracy business model continues to elude me.

For SotS II's medals, I basically used Photoshop Elements exclusively. The hand-drawn look comes from literally hand-drawing on a Bamboo Fun tablet. I used adjustment layers to alter the color of the crayon (which was in two layers, one for shading). The torn paper background came from using the tablet to draw a very rough outline and then using some filter fu to get the effect I wanted; there was a tutorial for this but I don't remember where to find it.

Inkscape is a vector drawing program and very good for anything where you want simple cartoon-style graphics or a nice diagrammed look. It's really an ideal tool for achieving a web 2.0 look. I used Inkscape to create the new images for the reference, as well as several icons that have been seen on this site.

Regardless of graphics program, if you're going to use .png for your results (and I see no reason not to, as .jpg pretty much only looks good for photos), I highly recommend Ken Silverman's pngout utility to compress your file. Pngout usually outperforms advpng and pngcrush, in some cases significantly.