Turning it on and off is cheaper than standby cause the light stays on, you'd be amazed how much money you'd save turning it off, rather than putting it on stand by

It's cheaper to turn it off because it will extend the life of your computer. If you're using Vista it won't take long either. You can extend the life of other electric / electronic equipment the same way when you turn off the switch at the wall socket.

It's cheaper to shut it down and then turn it off at the mains than to do either of your options. Both of those still use some power.

Next best option is to turn it off using the "shutdown" option.
This still powers some of the mainboard etc. in case you have "wake on lan" or "wake on ring", or a keyboard which incorporates a power button, or various other functions. Not a lot of power, but it's considerably more than just a red LED.

Then Standby. This mode means that your computer has to keep more onboard functions going; depending on your BIOS settings it might do a "suspend to ram" type function, which means the mainboard still has to power the memory and memory controller.

mythbusters done an experiment to do with the old myth about strip lighting, whether its cheaper to leave on all day or switch on and off as required.
most people think that the power needed to start up the light is more than the power used to leave it on for a couple hours.
they found that the power up cycle, although did spike a little in power consumption, that the spike was for a micro second and was easily cheaper than leaving the light on for 10 mins off non use.