Mixing, you can do that on your PC just fine.
Software-wise, Reaper or nTrack get you most bang for your buck with multitrack stuff. Mixcraft is in the same ballpark cost-wise but doesn't have the same features. I'm currently using nTrack but the UI is getting on my nerves, so I might change to Reaper. One downside of Reaper is a lack of MIDI control-surface support though, but this might not be an issue for you.
The big question is how many inputs you want, and how many of those need to be mics. For folk, you probably want as many mics as you can get. There are several bits of kit that give you 8 mic preamps with a Firewire connection back to the PC - Tascam, Presonus, MOTU and Focusrite spring to mind immediately. They all have phantom power.
I haven't got enough experience with different mics to recommend any. But Anahata has recommended Behringer C2s (small-diaphragm) for instruments in the past, and I've used those successfully for drum overheads. They're dirt cheap (£40 for a stereo pair!) so you can't really lose on them.
Most people have some SM57s hanging around as a "default" instrument mic. They're not actually that good sound-wise - I've got £10 Maplins mics which sound almost identical. :-/ They're nice and robust though, which explains their success as a stage instrument mic, but for a studio mic you're probably better saving your money.