For software, I like
Sonic Foundry. I use Acid, Vegas, and
Sound Forge as my main programs (you can find them for $150-$200 in some places). Midi is kinda lack luster tho, so I use
Cakewalk for any midi intensive work.
To get started, there is a free version of Acid at sonic foundry's site, its kinda limited, but it works pretty well.
For Mp3 conversion,
LAME is a fine encoder, and you can get a windows version here
A good soundcard is a must for good results.
I have been pretty happy with
M-Audio's stuff, I use the Delta 1010, and have setup systems with other cards and the quality of the A/D is pretty good. Looking at 200-600 depending on the card, and how much I/O you need.
A couple of mic's and a small mixer, or a mic pre, and you will be all set.