A little late to the party, but...
I love characters. LOVE LOVE LOVE them. I have been known to, in first drafts, sacrifice plot for character and have to go back and fix things.
My secret is to base my characters loosely on someone I know. Typically, they have one or two unique qualities that makes them stand out in a crowd. If they don't, I may give them a quirk to make them memorable.
I do this with secondary and minor characters only. I've been burned by making main characters too much like real people.
I think it's very important for characters to be bigger than the story they're in. I.e. you should know a lot more about your characters than is told in the story. I recommend the technique of interviewing them. Make sure no one else is around or is likely to walk in on you, then sit down with some coffee and cookies and talk to your characters about various topics. Converse with them and psychoanalyze to figure out why they are the way they are. Characters need motivations and to have motivations they need to have personalities and histories.
I agree with the first part, but as for the second... I usually start with an opinion of the character, general appearance, and a few ideas about what caused certain personality quirks. But like any good relationship, I like to learn more about people as I write them. When I started "Shell Game", I didn't know why Sarah did what she did, but by the end, I knew everything about her.
I'm starting to ramble, so I'll summarize: Your characters need to have lives of their own if they're going to be compelling and believable. You might not tell the reader how they spend their Saturday afternoons, but you should know. If you don't, then your character is going to be flat.
EXACTLY. Absolutely right.
Give them faults and fears. Things that they lie to themselves about. Personal biases.
People who have reviewed and beta'd my stories remark on the realism of the characters. I always give them flaws, and the more I write, the more flaws they get. My first stories, everyone was perfect. I started making them have problems. Then I started giving them appearances more in the middle of the bell curve. Then I gave them insecurities. I find that I love them more the less perfect they are.
I write a full history of each character before I get started. So I may start out with "Android unaware of his inhuman nature," but end up with four or five pages of when he was made, by whom, how and why the secret was kept, what explanation there is for him having no memory of childhood, the people he's met in his life who have influenced his past and present, and so on. I'll just let it flow, and by the end I'll have a far better idea of who he is, what he's like, what he wants, what he truly needs, and so on.
That works for some people, but not for me. As I said, I like learning about the characters. If I know everything about them beforehand, I don't care about them.
I'm writing a sequel to "Shell Game" -- it's outlined very vaguely, and one character from SG will be in it -- the second-most-hated character from SG is the star of the sequel. I don't know everything about her. I only know about her from what her brother and her brother's girlfriend know about her. I look forward to getting to know her and finding out WHY she's such a bitch.
*whew* That's all I got right now.