Section 1: Assembling a Pano Rig
Choosing a Pan Head To do this right you need to spend money. You're going to need to invest in a good digital camera - 8 megapixel or higher, a fisheye lens, and a pan head for your tripod. There are many manufacturers of pan heads. Here's a short list of some of them:
None of these are "inexpensive", so spend time thinking about what you want before you buy. Make sure that you get one that can do "spherical" panoramas - those are pan-heads that let you rotate the camera to shoot ceilings and floors. Also, be sure that the rig is large enough for your camera-lens combo, especially if you're using a conversion lens since those are much longer than just putting a fisheye lens on an SLR camera body.
I chose the Manfrotto 303SPH as my panhead because I wanted one that I could easily modify. I've written up a detailed description of my "pro" rig here.
Aligning the Nodal Point
Once you have your gear, the first thing you need to do is get it set up so that the nodal point is aligned to the center of rotation on your pan head. The nodal point (or more correctly, the "entrance pupil") of the lens is the point where the light beams flip upside down:
Setting the nodal point accurately is critical because when the center of rotation is at the nodal point no parallax shifting will occur as the camera rotates. Parallax shifting is when foreground and background objects appear to shift relative to each other as the camera is rotated. This makes it difficult (or sometimes impossible) to stitch the panorama together. To illustrate this, imagine that you've got a tree trunk or telephone pole in the foreground and a house in the background. The house is just touching the pole in the image:
If you've accurately located the nodal point around the rotation axis of your pano head then when you rotate the camera to the right, the image should look like this:
Notice that the house and pole are still touching exactly as they were before we rotated the camera. If your nodal point is not set precisely then foreground objects will shift left or right as in these examples:
Bad nodal point alignments!
So, setting the nodal point is critical and really quite easy. Just pick a foreground and background object and rotate the camera side to side while looking through the viewfinder. If the objects stay relative to each other then the nodal point is set correctly. If not then just keep shifting the camera forward or backward until you get it right. When I set my camera's nodal point here in my office, I use a door jam for the foreground object, and then a doorknob down the hallway as the background object. If the door jam and doorknob remain stationary relative to each other as I pan the camera left-right then I know the nodal point is good.
The nodal point on fisheye lenses is surprisingly close to the front of the lens (on the Sigma 8mm it's near the gold band), and it should also be noted that due to the high distortion factor of fisheye lenses, there is no exact nodal point for them. The nodal point is, in fact, a nodal oval. Nevertheless, you'll find that there is a sweet spot on any fisheye lens where parallax shifting is essentially zero.
This shows where the nodal point is on my old Raynox lens