There has been quite a bit of discussion about house wiring and grounding
practices here.  A few points need to be clarified:

The Equipment GROUNDING conductor, Green, green with a yellow stripe, bare, or
the metal sheath or pipe of SOME wiring methods, is used as a safety ground, to
carry fault currents back to the circuit breaker panel, and to limit the
voltage on the metal case of utilization equipment or other metal objects.  It
should never (except for a few exceptions to be discussed later) carry the
normal operating current of a connected load.  Some equipment has filters in
the power supply which may cause some slight current flow through the grounding
conductor.  

Much communications or audio equipment is sensitive to noise or slight voltages
on the grounding conductor, and may require special wiring of the grounding
conductors to provide reliable operation  ("orange" outlets are often used for
this, with insulated grounding conductors wired back to the panel box, and in
many cases back to the service.  Anyone installing such a system should read
both the section on grounding in the National Electric Code and publications on
installing quiet isolated ground systems.  The code requires the insulated
grounding conductors (green wires) to run with the current carrying conductors
back to the panel box, and, if required, back all the way to the service
entrance , where it is bonded to the service ground (water pipe or rod)  Many
of these systems are installed illegally or unsafely, where they do not provide
a safe ground or a quiet ground or either. 

The GROUNDED conductor of a circuit, often called the NEUTRAL, which is
referred to in the code as the "identified" conductor and is supposed to be
white or natural grey.  This conductor is supposed to be connected to ground in
most electrical systems at a single point, generally at the service entrance
panel.  This connection is through the Main Bonding Jumper.  (In many household
service panels, the main bonding jumper is actually a bonding screw which
attaches the neutral busbar to the case of the panel)  

The Grounded conductor (neutral) is generally a current carrying conductor.  In
the case of a 120 volt circuit it is one of the two conductors completing the
circuit from the panel to the load device.  

Since the grounded conductor (neutral) is only connected to the grounding
conductor (bare or green) at the service entrance, if the load is any distance
from the service and draws any significant current, there will be a small but
measurable voltage between the grounded and grounding conductors at the load,
under normal operating conditions.  If you should (incorrectly) connect the
grounded (neutral) conductor to the grounding conductor at the load, some of
the neutral current will flow instead through the grounding conductor.  Since
there will now be current flowing through the grounding conductor, it will also
no longer be quite at ground potential at the load end.  If the load equipment
has a metal case, which is connected to the grounding conductor through the "U"
ground plug, the metal case is now also no longer quite at ground potential. 
The difference (under normal, non short-circuit conditions) may be only a few
tenths of a volt, but it could also be a volt or two.  This normally does not
present a shock hazard.  

HOWEVER, if you let the metal case of the grounded equipment come into contact
with an independently grounded object such as a water or gas pipe, a radiator,
a metal air conditioning duct or such, part of the neutral current will try to
flow through this aalternate ground path.  If the contact is not solid, you
will get a significant arc (a low voltage, but possibly moderate current arc)
Under the wrong conditions, this arcing could start a fire.  It is possible in
some cases that the sneak ground current   could also flow through a wire of
inadequate size, causing it to overheat.

With the incorrect non single-point grounding of the neutral, if there is a
short circuit from hot to neutral, the high short circuit current which may
flow will cause a much higher voltage on the grounding conductor, which
increases the possibility for shock or fire.  

Also if you incorrectly multiply connect the neutral and ground, the voltage on
the ground system is seen as noise bu computer or audio equipment, often
causing malfunction.  I have spent some hours tracking down such shorts in
technical facilities where they were inducing severe hum into equipment.

The Neutral is usually bonded to the ground at the distribution transformer as
well as at the service entrance of each dwelling.  This is done primarily for
lightning protection, so that induced lightning currents have a short path back
to ground, and also to assure that the currents drawn by shorts to grounded
objects like pipes draw enough current to trip circuit breakers or blow fuses
quickly.  The bad side of this is that not all the neutral current from the
dwelling goes through the neutral wire back to the transformer.  Some of it
flows through the grounding electrode (water pipe, etc.) this may cause
corrosion in the pipes and possibly in things like underground fuel oil tanks,
and it may also cause measurable AC magnetic fields due to the large loop
between the "hot" conductors in the service and the neutral current in the
water pipe and ground.  There are those who feel these fields may be unhealthy. 
(don't flame ME on this, I'm just telling you where the field comes from, not
it's health effect, as far as I'm concerned, the jury is still out on this.)

Note that the bonding jumper is only installed at the main panel, NOT at any
sub distribution panels.  This is one reason why it is illegal to run service
entrance cable with the sheath used as a neutral to a sub panel, you must have
a seperate insulated conductor for the neutral.  The sheath can be used in this
application only as the groundING conductor.  If the neutral is bonded to the
grounding conductor in the sub panel, say by forgetting to remove the bonding
screw, all the grounding conductors of the loads on that panel will be above
ground, with the possible problems listed above.

The code makes exceptions for ranges and dryers, as well as feeds from one
building to another.  In the cases of the range and dryer, the neutral may be
used as the equipment ground under certain conditions, instead of a seperate
wire.  Every time the code is revised, these exceptions come up for review. 
These exceptions were, in fact the first required safety grounds, in the days
before U ground outlets and such.  The appliance manufacturers don't want to
have to redesign their ranges and driers, and the contractors don't want to
have to run four wire cable (with four fairly heavy, expensive wires) in place
of three wire to the appliances.  No question it would be safer with seperate
neutrals to the stove, but the neutral current is low for most burner settings
(since most current is in the 220 volt "hots" except at some low settings, the
wires are large gauge, and there are few reported cases of injury or damage. 
So far, the exceptions have survived. In the case of feeds between buildings,
it's primarily for lightning protection.

People doing wiring should be aware what is and what isn't a legal grounding
conductor.  Obviously, the bare wire in "romex" 'with ground' is.  Anywhere
there is a green wire installed, such as in a portable cord, that is a good
grounding conductor.  The sheath of BX clamped in BX connectors in metal boxes
is a legal grounding conductor (in the US). (BX has an aluminum band run under
the steel sheath to lower the resistance of the sheath.  You can just cut this
aluminum band off at the ends, you don't have to bond it to anything, it does
its job by touching every turn of the BX sheath.) Conduit or EMT (thinwall
tubing) is generally a legal grounding conductor, but may require a bonding
locknut where it enters a box or panel, particularly for larger pipes.  

"Greenfield" (looks like big BX, but you pull your own wires in the empty
sheath after you run it) is NOT a legal grounding conductor, as it doesn't have
the aluminum band to bond it, and the spiral steel has too much resistance and
inductance.  You have to run a seperate green grounding conductor inside the
greenfield.

"Wiremold" is also not a legal grounding conductor, as the paint on the boxes
often prevents good contact, and the "feed" to the wiremold extension is often
from a box in the wall that may not be well connected to the first wiremold
box.  I have personally discovered cases where the entire run of wiremold and
the cases of everything plugged into all the outlets on the run were "hot" with
120 volts (Why do I get a shock every time I touch my computer and the radiator
here in the office?) because there was no ground wire in the wiremold and one
of the outlets had shorted to the edge of the wiremold box.  You must run a
ground wire back in the wiremold from the outlets at least to the first box in
the original wiring (conduit, BX, etc.) where you can "bond" the wire to the
box with a screw, bnding clip, or whatever.

On another issue, while you should ground the green wire/lug on GCFI outlets
when ever there is a place to ground them, it is legal in the NEC to use them
without a ground if no ground is available.  It is better to have the
protection of the Ground fault interrupter than no protection if you don't
install it.  The interrupter doesn't depend on the ground to trip.  It is
desirable to connect the ground if available, because if the ground is
connected, the interrupter will trip as soon as a faulty device is plugged in,
whereas without the ground, it will not trip until someone or something
provides a ground path.  For those questioning the legal use of ungrounded
GCFI's, read in the NEC, 210-7 (d) exception. (This is the 1990 code, my '93
code is in the city, but I know the rule hasn't changed.  It might be
renumbered though.) 

We have only touched the surface concerning grounding ;-} , there is much more
to this subject, but most of you have fallen asleep by now.  

John