For "Usability Testing", I would recommend Steve Krug's second book, "It's Not Rocket Surgery", rather than "Don’t Make Me Think".
"It's Not Rocket Surgery" is entirely about usability testing, whereas his first book only dedicates 1-2 chapters to it.
Also in my top UI books shelf: Jenifer Tidwell's "Designing Interfaces". It's about patterns that show up in UI and when it's appropriate to use them. I browse it whenever I find myself with a UI issue that I'm not sure how to deal with.
What are good sketching software tools? I know about Balsamiq and Pencil, but I'm not a fan of either for various reasons.
I've tried both, I seem to like OmniGraffle better, perhaps mostly due to the huge number of templates on graffletopia.