State machines in C

I like the Quantum Leaps approach.

The current state is a pointer to a function that takes an event object as argument. When an event happens, just call the state function with that event; The function can then do its work and transition to another state by just setting the state to another function.

E.g.:

// State type and variable, notice that it's a function pointer.
typedef void (*State)(int);
State state;

// A couple of state functions.
void state_xyz(int event) { /*...*/ }
void state_init(int event) {
    if (event == E_GO_TO_xyz) {
        // State transition done simply by changing the state to another function.
        state = state_xyz;
    }
}

// main contains the event loop here:
int main() {
    int e;
    // Initial state.
    state = state_init;
    // Receive event, dispatch it, repeat... No 'switch'!
    while ((e = wait_for_event()) != E_END) {
        state(e);
    }
    return 0;
}

The QL frameworks provides helpers for extra things like entry/exit/init actions, hierarchical state machines, etc. I highly recommend the book for a deeper explanation and good implementation of this.

That's pretty much the standard approach. If you're interested in studying a well considered library and comparing specifics, take a look at Ragel:

Ragel compiles executable finite state machines from regular languages. Ragel targets C, C++, Objective-C, D, Java and Ruby. Ragel state machines can not only recognize byte sequences as regular expression machines do, but can also execute code at arbitrary points in the recognition of a regular language. Code embedding is done using inline operators that do not disrupt the regular language syntax.

The best way is largely subjective, but a common way is to use a "table-based" approach where you map state codes (enums or some other integral type) to function pointers. The function returns your next state and other associated data and you loop through this until the terminal state is reached. This might in fact be what you are describing as your approach above.