I've been spending some time trying to choose a domain name for a new web service.  Turns out this is a lot easier said than done.  James Simonoff has written a comprehensive article "How to buy domain names like a pro" with a lot of great information and resources.  Here are some tips I've picked up along the way. 

1. Be organized.  Make a spreadsheet and keep a list of all the names you come up with.  Make notes as necessary.  My list quickly reached over 400 names.
   
   
2. Understand the niche you are going into and what role the domain name will play in building your brand.
   
   
3. Put together a list of key words that are relevant to your site.  Search on each of these words and pay attention to how your competition appears in the results.  How competitive is the market for these key words?
   
   
4. .com .net or another TLD?  The consensus is that .com is best, .net if you have to.  Using a country TLD like .im, .in, or .ly may make it easier to come up with a cool name, but the goal here is making it easy for people to find you and remember your name.
   
   SEO / AdWords guru Nicole Ciomek advises "... as web users might question the legitimacy of a site like that, if it is on a strange domain. .Com and .Net are trusted. I think any domain can get ranked, as long as it has quality SEO, even if it is a strange domain such as .sh. As long as it is relevant and a quality site, that's all that matters to Google. Adwords can actually help in situations like this. They can drive more traffic to the site, and help build up a following while the SEO takes hold."
   
   
5. Use services like DotoMator to help generate long lists of possible names.  DotoMator will even check the availability of up to 50 names at a time.  Dotster has an excellent search utility that's easy to use and provides decent suggestions of deritive names.  I found this to be more helpful than GoDaddy or Network Solutions.
   
   
6. Once you narrow down your list or perspective names, run Google searches on them and see what comes up.  If you want to make it easy for people to find your site, then choose a name that has few existing matches in Google... the fewer the better.

Good luck!

Sources: 

http://www.dotomator.com/tips.html

http://www.fourhourworkweek.com/blog/2009/02/27/how-to-buy-domain-names-like-a-pro-10-tips-from-the-founder-of-phonetagcom/%20