Constructing a Home Recording Studio on a Small Budget?

Pinball Wizard asks: "I would like to put together a home music studio. When it comes to keyboards, effects, and other electronic goodies, the choices seem pretty straightforward. But when it comes to guitar and recording other analog instruments and voices, the world of home recording seems bewildering. What are the best ways of recording analog sounds onto hard disk? I'm a lot more interested in a clever technical solution that costs less than $1,000 than I am taking out a loan and buying ProTools for $10,000 or more. What are the different pieces of equipment (microphones, preamps, etc) that are needed to do this well?"