One thing I learned from this is how easy and cheap it would be to record a record at home.
Honestly, with the digital recording age being what it is, it's a ridiculously simple setup. Now, the stuff I did is obviously not high quality (mostly because I didn't really take the time to learn as much as others have), but it's a step in the direction, and if you keep in mind the importance of quality steps that come later on (the mixing and mastering stages), you can create something ready to be polished at a good studio with an extremely tight budget. There are even decent mixing / mastering tools that can be used at home these days; I'd just prefer the experience of someone who has done it many times before, not to mention the insight of another person's point of view. That was my original intent on this project, which is now a phase that has yet to be realized.

This setup included the following:
PC for recording
I know most people would be tempted to use a computer or laptop they currently own for recording, but I can't stress how important it is to have a separate environment specifically for recording that is not used for daily activities (especially internet activities). The PC I used was $50, used. I did buy a new hard drive for $40, but I imagine you could find something even cheaper now, 5 years later. The simplicity of the PC I bought was necessitated by the software I was using...
Software
I used ProTools Free, which required Windows 98. That's right, Windows 98. Simply the nature of using Win98 required having a very basic PC since the RAM requirements max out pretty low, and the speed of the CPU can only be so high (I think?). But it worked. Sure, it was sometimes awkward and needed to be rebooted, but it worked and was cheap. At the time, I chose ProTools Free because PT was the standard studio software, so I figured it would be easily imported to any quality studio I would take the material to for mixing/mastering. The only drawback to PT Free is that it's limited to only 8 tracks. There are plenty of free recording programs with unlimited track capabilities, though, so you can layer to your heart's content. I figured if I was going to learn an environment, it might as well be the standard. Plus, there wasn't really a need for more than 8 for this project.
Sound card
This will pretty much dictate some of your other equipment needs (preamp, mainly). I went with the M-Audio Audiophile card, which has two inputs since I would only be recording a single track at a time, or maybe something in stereo. It's been useful for other applications as well, like putting vinyl collection stuff to cd, cassettes to cd, etc. Great quality card, and only about $100 or so. The cost of sound cards seems to go up exponentially with handling 4 or more inputs at a time, and unless you're tracking something like a drumkit at home, you probably won't have the need.
Preamp
Like I said, your preamp will only need to handle as many lines at one time as your sound card can. Makes sense, right? That being said, I selected the M-Audio DMP3, which handles two channels. It has phantom power, but I quickly noted that it really only has the capability of providing enough phantom power for one condenser microphone- I tried using it with two condenser mics at once, and it just didn't work out. IIRC, there was some light buzzing that was annoying. But one condenser mic and one dynamic worked fine (which i did on the front and back of a guitar amp). The DMP3 I bought used (few moving parts, hence a good chance that a used one wouldn't have many issues) for about $120. IMO, anything tube won't really be worth it until you get into spending thousands of dollars. This preamp was solid, clean, and simple.
Microphones
Mics are kind of subjective. Some people think they can't live without a $1000 mic. I can. The Shure SM57 is a pretty standard workhorse mic, and I had one of those from way back in high school. It still works great, and is about $100. My favorite mic I bought was the Studio Projects B1 condenser mic. I like its presence, the fact that it's crisp but not harsh, and I think my voice/guitar worked pretty well with it. The B1 was about $100; their other mics are also well regarded. A pop filter would be good if doing vocals.
Cables, mic stands
These are the necessities you don't necessarily think of, but that add up. Mic stands are generally about $25, cables can be had for around $10 each- do your research on what types you need for the microphones and preamp you are getting. Most XLR inputs are fine. I found a guy on ebay who made his own cables with Neutrik connectors (decent quality), and I think I got 5 for about $56 with shipping. They're nicely built- Pete at Mantis Cable Co is who I dealt with, he's recommended.

So... under $500 total. This is, of course, not counting instruments, which I already had. If you're stuck for instruments and all you have is a cheaper guitar, ask friends and family if someone has one to loan. You'd be surprised how many people have guitars (really nice ones) floating around, unused. If purchasing a guitar, I can't stress enough how much used equipment saves money.