heres just some opinions, figured couldn't hurt if you got more opinions on stuff to use.

Stay away from Uni-directional dynamic microphones - While portable these are usually the cheapest and generally offer the worst sound quality- For between 75-125 USD you can pick up a decent B-1 or B-2 Class Studio Microphone. These Microphones operate on transducers or condensers and are made in a much higher quality than your PC mics or Radio Shack hand me downs. I originally began recording with a $50 dollar radio shack mic, and have since upgraded to a Studio Projects B1 Mic which was purchased for under $80 on sale.

If you have any of the Music downloading programs such as Kazaa, I-mesh, Lime-Wire- etc. You can find pirated copies of "Cakewalk"- "Cool Edit" (Adobe Audition)- Fruity Loops (More for beats but whole songs can be worked on in it)-Acid etc. Any program that lets you work with multiple tracks will suffice, I find Cool Edit is usually the easiest to use for beginners. I occasionally will use Cakewalk to mix down my vocals to an instrumental however I have a seperate setup now which makes this obsolete.

Accessories-- These are things you should probably pick up---
Mic Stand- You can get a nice Tri-pod extending Mic Stand for between 25-35$ at any music store, The Shock Stand should come with your microphone, but make sure because you may have to drop another few bucks on one.
Pop-Filter - Almost any mic you buy will have that foam removable cover which is a cheap way to filter popping noises, but its not completely effective all the time-- A studio quality Pop-Filter can be found for between 15-25$ in most music stores and it will dramatically improve sound quality. I have yet to aquire this yet myself.

Pre-Amp- You will need this if you are using a microphone requiring a phantom power source- This powers the mic and there are differences in quality between differnt pre-amps... Some will leave a loud humming if the mic sensitivity is too high so its best to shop around... We have a Rolls 12/48 Volt Phantom Power adapter which was picked up for 50$- I find the sound quality relatively good.

Sound Card-- If your recording directly to your computer or doing any work on your tracks on the computer it is wise to upgrade your soundcard... I have yet to do this, but there are some good suggestions mentioned here already I have heard good things about "presonous blue tube" which can be found for around $100

Now This Item is the first Item we purchased for our home studio-- It will put the whole setup over the 500$ limit, but if your in the market its a great purchase---
We purchased a Digital 64 track Portable Studio-- Everyone is like "wtf?"- but these are relatively inexpensive for what you get... For under $500 Used (we paid around 450) We were able to get a Studio Quality Digital Mixer, 8 tracks to record to, with 64 virtual tracks to bounce to, effects bounce and mastering abilities- USB connection so you can import and export tracks to and from your computer- Midi in and out- and the ability to run off of 8 double A batteries so you can load up a beat, grab your headphones and portable mic and go record anywhere.... This is much cheaper than say 8 track studio mix board that the professionals use (2 Grand and above) but yields comparable quality.

Headphones-- I reccomend you get a quality set of studio headphones, this will show the true quality of the recording while working on it so you know where any imperfections may be. We use AKG K141 Monitor Headphones purchased from a music store for about $100.

Of course you will also need the necessary cables- Keyboards are optional- and there is more equipment you could always add, but with what I said above you will have an actual Home Studio where you can produce high quality tracks without paying for studio time.

__________________