Objects are a good way to organise code and maintain state

( function( $ ) {
	function Redman( elem ) {
		this.init( elem );
	}
	Redman.prototype.init = function( elem ) {
		this.element = $( elem ).addClass( "wu-tang" ).css( "color", "red" );
	};
	Redman.prototype.destroy = function() {
		this.element.removeClass( "wu-tang" ).removeAttr( "style" ).removeData( "redman" );
	};

	$.fn.redman = function() {
		return this.each( function() {
			// Instantiate a new Redman, storing the instance in the element's data cache
			$.data( this, "redman", new Redman( this ) );
		});
	};
})( jQuery );

$( function() {
	var r = $( "#foo" ).redman().data( "redman" );
	setTimeout( function() { r.destroy(); }, 2000 );
});

Works, but is not idiomatic, nor does it abstract common plugin tasks

( function( $ ) {
	// The jQuery.aj namespace will automatically be created if it doesn't exist
	$.widget( "aj.filterable", {
		// These options will be used as defaults
		options: { className : "" },
		_create: function() {
			// The _create method is where you set up the widget
		},
		// Keep various pieces of logic in separate methods
		filter: function() {
			// Methods without an underscore are "public"
		},
		_hover: function() {
			// Methods with an underscore are "private"
		},
		_setOption: function( key, value ) {
			// Use the _setOption method to respond to changes to options
			switch( key ) {
				case "length":
					break;
			}
			// and call the parent function too!
			return this._superApply( arguments );
		}
		_destroy: function() {
			// Use the destroy method to reverse everything your plugin has applied
			return this._super();
		},
	});
})( jQuery );

Use the _create method to set up your widget. It is called the first time that the plugin is invoked on an element.

_create: function() {
	// this.element -- a jQuery object of the element the widget was invoked on.
	// this.options --  the merged options hash

	// Cache references to collections the widget needs to access regularly
	this.filterElems = this.element.children()
		.addClass( "ui-widget-content " + this.options.className );
	this.filterInput = $( "<input type='text'>" )
		.insertBefore( this.element )
		.wrap( "<div class='ui-widget-header " + this.options.className + "'>" );

	// bind events on elements: 
	this._on( this.filterElems, {
		mouseenter: "_hover",
		mouseleave: "_hover"
	});

	// toggles ui-state-focus for you:
	this._focusable( this.filterInput );
	// _hoverable works for ui-state-hover, but we will do something slighty different in our hover
	this._on( this.filterInput, {
		"keyup": "filter"
	});
	this.timeout = false;
}

Store distinct pieces of functionality as separate methods.
If the user may need to invoke a function programmatically, expose it!

filter: function( event ) {
	// Debounce the keyup event with a timeout, using the specified delay
	clearTimeout( this.timeout );
	// like setTimeout, only better!
	this.timeout = this._delay( function() {
		var re = new RegExp( this.filterInput.val(), "i" ),
			visible = this.filterElems.filter( function() {
				var $t = $( this ), matches = re.test( $t.text() );
				// Leverage the CSS Framework to handle visual state changes
				$t.toggleClass( "ui-helper-hidden", !matches );
				return matches;
			});
		// Trigger a callback so the user can respond to filtering being complete
		// Supply  an object of useful parameters with the second argument to _trigger
		this._trigger( "filtered", event, {
			visible: visible
		});
	}, this.options.delay );
},
_hover: function( event ) {
	$( event.target ).toggleClass( "ui-state-active", e.type === "mouseenter" );
	this._trigger( "hover", event, {
		hovered: $( e.target )
	});
},

Plugin users can change options after a plugin has been invoked using $("elem").filterable("option","className","newName");.

If modifiying a particular option requires an immediate state change, use the _setOption method to listen for the change and act on it.

_setOption: function( key, value ) {
	var oldValue = this.options[ key ];
	// Check for a particular option being set
	if ( key === "className" ) {
		// Gather all the elements we applied the className to
		this.filterInput.parent().add( this.filterElems )
		// Wwitch the new className in for the old
		.toggleClass( oldValue + " " + value );
	}
	// Call the base _setOption method
	this._superApply( argruments );

	// The widget factory doesn't fire an callback for options changes by default
	// In order to allow the user to respond, fire our own callback
	this._trigger( "setOption", null, {
		option: key,
		original: oldValue,
		current: value
	});
},

<ul id="cheeses">
	<li data-price="17.99">Gruyere</li>
	<li data-price="16.99">Comte</li>
	<li data-price="4.99">Provolone</li>
	<li data-price="8.99">Cheddar</li>
	<li data-price="18.99">Parmigiano Reggiano</li>
	<li data-price=".99">Government</li>
</ul>
<div id="register">
	One pound of each would cost $<span id="total"></span>
</div>

A good widget provides a solid base with callbacks for customisation.

var total = $("#total"), cheeses = $("#cheeses"), register = $("#register"), price = $("<span>"),
	activation = $("#activation").button({icons:{primary:"ui-icon-search"}});
activation.click(function() {
	if ( cheeses.is(":aj-filterable") ) {
		return cheeses.filterable("destroy");
	}
	cheeses.filterable({
		className: "cheese",
		create: function() { register.addClass("ui-widget-header cheese").show(); },
		filtered: function(e, ui) {
			var t = 0;
			ui.visible.each(function() { t = t + parseFloat( $(this).data("price") ); });
			total.text( t.toFixed( 2 ) );
		},
		setOption: function(e, ui) {
			ui.option === "className" && register.toggleClass([ui.original, ui.current].join(" "));
		},
		hover: function(e, ui) {
			if (e.originalEvent.type === "mouseenter") {
				price.text(" - " + ui.hovered.data("price") + " per lb").appendTo(ui.hovered);
			} else {
				price.detach();
			}
		}
	}).on("filterabledestroy", function(e,ui) {
		register.removeClass("ui-widget-header "+ui.options.className).hide();
	}).filterable("filter");
	setTimeout(function() { cheeses.filterable("option", "className", "cheesePlease"); },3000);
});