For drug possession crimes (i.e. not dealing) which stem from that individual's drug addiction, I'm in favor of treating that as a medical problem rather than a criminal problem. For other crimes that do not involve an actual victim, I think the concept of house arrest should be refined, the idea being to make it a bit more of a punishment: cutting off cable TV, dish TV, internet access, and visitors seem like the obvious choices if house arrest is to be a credible alternative to minimum-security incarceration.
I've mentioned this before, but I also feel strongly that when it comes to actual incarceration, members of the same gang should never be placed in the same cell, or with non-violent non-gang members, if at all possible. I realize that allowing prisoners to influence cellmate selection makes life easier for prison management, but in my opinion allowing this sacrifices too much: it strengthens gang ties, it gives younger criminals role models, it indirectly legitimizes the gangs, and it makes the prospect of going to prison less of a deterrent (to the point where - at least to judge by an NPR report I heard - young members of the main Northern California street gang have started to view eventually going to prison as a natural, inevitable, and perhaps even DESIRABLE part of their life cycle).