Most everyone I know carries 1 quart (32 oz.) wide-mouth Nalgene Lexan bottles fastened to whatever they want to fasten it to using a largish carabiner. The carabiner is fastened using the loop that holds the cap teathered to the bottle.

I have both the Lexan and the HDPE (high density polyethylene - the cloudy white stuff), and I tend to prefer the Lexan. There has been some talk of health issues related to Lexan, but I think most of that has been put to rest. I still use mine without fear. The HDPE feels like it would puncture easier, but so far both have survived just fine.

Every once in a while I come across someone using a Camelbak or similar. They offer a distinct advantage in that the user can hydrate on the go much easier and more frequently. With the Nalgene bottles there is a tendancy to stop to drink.