I've put together a decent recording setup for a modest cost so here's what's worked for me.....
I think you would be best off to go with one of the lower cost DAW programs to start with. I use
n-Track Studio and I love it. It has automatic plugin delay compensation (absolutely necessary IMO), accepts VST and DX plugins, and has about every other feature you will ever need. You can download the full version for free (it beeps at you occasionally) and costs $75 to register. n-Track and Reaper are two excellent options and both have a number of advantages over Pro Tools LE.
I use M-Audio Delta 1010 and Delta 66 sound cards for a total of 12 channels. They have worked great for me and I like the fact that they are PCI cards which have a little lower latency than Firewire. I've taken the route of going with converters that don't have built-in preamps which has given me a little more flexibility in that area.
It was interesting to read jdier's post because his overall approach has been similar to mine but with some significant differences. I have a mixer which has given me quite a bit of flexibility in several areas. It's a Mackie 1642 VLZ - no great shakes - but it gave me 10 channels of preamps to start out with (I've since bought several outboard pres), it allows me to use a talkback mic as well as have a scratch guitar playing without taking up a recording channel, and it serves as a control for my monitor system. I run the tape outs from the mixer into the AUX input on the amp which gives me a separate volume control for the monitors on the mixing board. I never accidentally blast the monitors at high volume and I can equalize the volume between my mix and a reference CD (see below). The mixer also supplies the headphone output to the multichannel headphone amp for tracking.
Speaking of monitors, I use Polk bookshelf consumer speakers because I listened to a bunch of "recording monitors" and I like the sound of the Polks better. They are very detailed and my mixes translate very well. I use them in conjunction with a Mirage subwoofer which gives me a full range system. I use an Onkyo integrated amp to power the speakers. Another advantage to this system is that I have a CD player hooked up to the amp also which makes it easy to occasionally check my mix against a reference CD. I've found this practice invaluable in mixing.
In the microphone department, the main thing I can say is don't be afraid to go cheap. You can get an MXL 2001 for about $60 and it's a great mic for several applications (acoustic guitar and bass cab for example). Here's a few cheap mics that have worked well for me; AT MB2K (snare & guitar cab), AT Pro37R (toms, overheads, instruments), Groove Tubes GT55 (vocals, acoustic guitar), MXL 603s (acoustic guitar, overheads), and Audix D6 (kick). The more dynamic mics I have collected the less I like the sound of the good 'ole 57. I still use it as one mic of a double tracked guitar cab (the other I use is an AT 29HE - night and day different sound than the 57) but I don't use them for much else anymore.
You'll need headphones. Vic Firth Isolation headphones sound like ass but they isolate well and they are fine for tracking ($60). Sennheiser HD280's sound very good and isolate reasonably well ($100). Audio-Technica ATHM40 headphones sound very nice and nearly always get picked for vocals by the singer after trying three or four types on hand.
Last but not least, you might want to get a couple of channels of outboard preamp for vocals and general tracking. The one I would recommend to start with is the ART MPA Gold. This preamp sounds way better than it's price would indicate and you can geek out and upgrade the tubes for a different flavor. Over time I acquired enough channels of preamp that I don't use the Mackie pres anymore but I wouldn't sweat the preamps at first. If you go with a half way decent mixer or converter that has built-in pres then you'll be fine for quite a while.
If you want to hear a few things I've done you can check them out on Myspace -
Mudshark Studios