Best way to store instruction manuals?
For physical manuals, I personally like to use clear presentation sheet protectors similar to the ones that @BradC mentioned. Regarding organization, I place the ones that I refer to frequently in some binders, sorted by theme, while sets that I don't use as much go into a set of hanging file folders.

If you don't mind electronic storage, you could download all of your manuals, either from Lego's site (for sets since 2002), or from other fan sites as noted in this Squidoo page:


  Still no joy? Let's try another site. Go to Worldbricks, choose
  Instructions Number and pick a number range from the dropdown list at
  the top of the screen, or Instructions Theme and pick a starting
  letter from the dropdown list.
  
  Without knowing the number or name, you can still find the set.
  Several sites provide databases of lego sets which you can search by
  theme, or using a single word you remember from the set name, or even
  just something related. Try LUGNET or Peeron, which will link you to
  instructions once you find the set.


Electronic viewing keeps my manuals in pretty good condition - I minimize touching and only pull them out when I build now, while if I just want to browse, I can fire up my computer.