We've been recording to computer for a couple of years now. We always go for live takes - ie we don't lay down individual sources/tracks one at a time.
The software we use for recording is n-Track Studio - this allows multiple sources to be recorded simultaneously as individual wav files. We also invested in a good quality soundcard - the M-Audio 1010LT - which allows for up to 8 simultaneous inputs (2 inputs can be direct from microphone or instrument pickup, the others need to go via a device such as a mixer).
We record Val's vocals into channel 1 direct into the soundcard.
We record Jimmy's vocals into channel 2 direct into the soundcard.
We record Val's guitar into channel 3 via a small mixer, panned full left.
We record Jimmy's guitar into channel 4 via the small mixer, panned full right.
This gives 4 separate wav files (1 for each channel) - you can add effects (eg reverb, compression, etc) to these individual tracks if you wish. You can also alter the volume and panning of the individual tracks. When happy with it all you can also use n-Track to mix all the tracks into a single stereo sound file.
n-Track is shareware, but the cost of registration is minimal and we find it easier to use than the commercial more heavyweight software such as Cubase.
Jimmy & Val (jiva)