I got an MXL Studio Condenser. Think it's around £120, been using it for a year and it's still pretty sharp.
Audacity is the universal program that's free to download and it gives you all the basics, compressors, high, low pass and notch filters, echo, delay... Fuck around with it, it'll get you started:
http://audacity.todownload.com/?gcli...FW3KtAodvFcAWQ
If you want to get serious, Pro Tools for Windows and Logic Studio for MAC. I still ain't got the money for that shit.
To answer your last question, adding together leads, cables, stands, mics, filters and software... For me, I'd say you could make a decent home studio for around £800-1000. You can get along with £300, which is what I currently have, bahahah.