Best way of getting path to "Application Data" directory?

There are several possible ways of getting the path to the application data directory:

• using the %APPDATA% environment variable
• calling SHGetFolderPath with CSIDL_APPDATA

What is the best way to get the path from within an program? Are there any gotchas when I use the environment variable?

Which method is safest across XP, Vista and upcoming versions?