Well, Craig has given the virtues of emulators, and Peter their vices!

Emulators can be extremely useful tools, but they are not magic.

<i>But today many micros with in circuit programmable Flash available, which can be downloaded over the serial or parallel port from your PC without any additional hardware.</i>

Increasingly, processors have built-in hardware which gives you <i>nearly</i> all of the features of an ICE without the drawbacks.
The Triscend E5 has such an on-chip "System Debug" facility; Motorola call it "Background Debug Mode" (BDM) on their processors, etc, etc.

There's some good stuff at the Macraigor site about BDM, on-chip debug, JTAG, etc, etc:
http://www.macraigor.com

In particular, check out their "Zen of BDM" paper.