Probably the Best Free Security List in the World

The problem with both firewall and detection software - like Defender - is the better it detects, the more the user has to get involved. (In a way, a firewall is also a detection software, it just detects unwanted net activity instead of malware, so the below comments apply to both.) In a really agressive detection software, you might get a lot of alerts that require your attention - sometimes including false positives - sometimes so many alerts it might overwhelm you. So you have to decide your comfort zone when picking a product. You can up your risk, but keep your sanity. A tradeoff, and there's no easy answer.
Some people go for a compromise. A software that detects pretty well - but not top notch - will probably have less false positives and nag you less. The other advantage is it will tend to play better with other securtiy programs.

I said all that so these comments will make more sense:
Defender - not a very good detector, but plays well with everything. Good for one thing I've seen - good at protecting against software writing unwanted things to your registry. I'd leave it on.
Avast - a very good overall choice. Good detector that won't drive you crazy. I wouldn't turn off the HIPS unless it's bugging you so much you just want to say yes to everything. That's really the litmus test that says you either need to suck it up, or change your settings or security software and - maybe (new software is sometimes better) - you won't be taking too much risk.
Windows Firewall - not the best rated in tests, but better than nothing. The problem is, it doesn't give you any outgoing alerts to protect against a baddie that's gotten into your system and trying to phone home. If you think you can stand monitoring that stuff you can download a small, simple software that will piggyback on the Windows Firewall and give you some outgoing alerts:
Windows7 Firewall Control
http://sphinx-soft.com/Vista/order.html
It's recommended by more than one Gizmo editor. I wouldn't run the Windows Firewall without it, but alerts don't bug me that much.
PrivateFirewall - It's reputation is as user friendly, but it's gotten more complicated recently and some think it's for slightly more advanced users. Of course I don't know where you are on that spectrum. Also hasn't done as well in this years tests as it has in the past.

Hope this helps.