Is it possible to clone my entire mac to a new mac?

I have a MBA. Had it for a few months and I am in love with the thing.

Tell me, how hard is it to set up a new Air if you are running last years Air and you want the new Air to be exactly the same as the old air in every respect software wise? I'm thinking about system preference settings and application preference settings, applications and plug ins etc. If it is an easy task - I may start getting a new machine more frequently than I have in the past as a windows user.

Yes its called migration assistant

Move data from an old Mac to a new Mac | Macworld

Does it move all the preference settings?

It can if you ask it to. Mac OS X v10.6: How to use Migration Assistant to transfer files from another Mac

OS X Lion: How to use Migration Assistant to transfer files from another Mac

Will Time Machine do the transfer?

Yes. If you click the linked referenced above one of the links in that article explains how to use Time Machine within Migration Assistant.