Minidiscs are good, but that doesn't address the question of microphones or getting the sound to a CD.

My quick cheap list would be something like:

• Mics: 2 Audio Technica AT2020
• mic stands
• mic cables
• Behringer UB802 - got to be the cheapest way of buying two channels of mic preamp
• cable: 2 x ¼" jack to stereo 3.5mm jack to plug into computer sound system line input
• Software: Audacity (free) for recording
• Some sort of CD burning software (anything will do)
• A printer like the Epson Photo Stylus R200 that can print direct to CD (if you want it to look nice)

With a setup like that, you could try mixing guitar and vocal directly to to computer (adjust balance and pan by trial and error on the mixer) - otherwise one part to each channel and do the mixing in the computer (you might want something better than Audacity for that, but it can be done)

The rest of it is lots of trial and error - mic positions, room acoustics etc. till it sounds right.

Anahata