Cascading lookup field in SharePoint 2007 / 2010

Check out this articles. They provide a nice and easy way to create cascading drop down lookup fields in your new or edit form.

SharePoint 2010: How to create Cascading Lookup Field (InfoPath approach)
http://blog.libinuko.com/2010/07/21/sharepoint-2010-how-to-create-cascading-lookup-field/

SharePoint 2010: How to create Cascading Lookup Field using Client Object Model
http://blog.libinuko.com/2011/01/29/sharepoint-2010-how-to-create-cascading-lookup-field-using-client-object-model/

There is also a ready to use solution available on codeplex which uses a different approach of using custom field controls for achieving the cascading effect.
http://cascddlistwithfilter.codeplex.com/

Reference:
http://datacogs.com/datablogs/archive/2007/08/26/641.aspx