Step 1: Download sbf_flash, and follow his directions with 1 modification, shutdown your phone and hold "UP" on the directional pad before "just plugging it in" (note, the screen will be blank/black and have some white text on it in a very primitive font, if that's what you got you're good) and I believe the application must be run as root. Also, the sbf image you will need is SPRecovery
Step 2: Download CyanogenMod's latest release (at time of this writing it was 5.0.7) and copy it to the root of your SDCard and rename it "update.zip"
Step 3: Shutdown your phone and reboot into SPRecovery by holding the 'x' key on your keyboard while it powers on (be holding 'x' before you hit the power button just to be sure). This should boot you into SPRecovery.
Step 4: Make a backup!!! You are going to want to make a backup here just in case something goes wrong. Use the volume up/down buttons on the side of your phone to move the selection up and down and the camera button on the side of your phone (power button takes you back to the previous menu).
Step 5: Flash the update, select "install" and in the next menu tell it to allow update.zip, then select "Install /sdcard/update.zip"
Step 6: Install the Google Apps, first copy the gapps file over to the root of your SDCard, rename it "update.zip" overwritting the old one. And repeat Step 5 remembering to hold 'x' while booting to get to SPRecovery.
Step 7: Reboot and enjoy
NOTE: If your phone goes into what appears to be an infinite reboot loop, pull the battery and then hold 'x' again when you power back up to get back to SPRecovery and tell it to do a wipe of user data, its an option in the main menu. This happens but not always so don't be alarmed if it does.
Step 8: (Optional) Download ROMManager from the App Market and buy the extremely reasonably priced Premium version that will monitor new releases of the ROM as well as automate the flashing process.
NOTE: ROMManager is going to require a different Recovery image but it will handle the installation of this and will continue to make life awesome for you .... again, *highly* recommended.
Feel free to come hang out in #koush on irc.freenode.net if you have questions or just want to talk about the awesomeness that is CyanogenMod on the Motorola Droid!