I use it, especially since the hosted Version of FugBugz is free for up to 2 people. I found it a lot nicer than paper as I'm working on multiple projects, and my paper tends to get rather messy once you start making annotations or if you want to re-organize and shuffle tasks around, mark them as complete only to see that they are not complete after all...
Plus, the Visual Studio integration is really neat, something paper just cannot compete with. Also, if you lay the project to rest for 6 months and come back, all your tasks and notes are still there, whereas with paper you may need to search all the old documents and notes again, if you did not discard it.
But that is just the point of view from someone who is not really good at staying organized :-) If you are a really tidy and organized person, paper may work better for you than it does for me.
Bonus suggestion: Run Fogbugz on a second PC (or a small Laptop like the eeePC) so that you always have it at your fingertips. The main problem with Task tracking programs - be it FogBugz, Outlook, Excel or just notepad - is that they take up screen space, and my two monitors are usually full with Visual Studio, e-Mail, Web Browsers, some Notepads etc.