The center of your workstation should be the computer. Choose a brand you are comfortable with. Clock speed is the most important: 2.5 MHz on the low end, 3 MHz on the high. Multiple cores are preferred, and will take the strain off of your CPU. Choose your mics wisely, as a bad mic can destroy a track. Blue Bird makes affordable mics (under $500) that perform like mics that cost twice that (see Resources).
PropellerHeads puts out composition software called Reason 4.0 that works as a powerful sequencer with thousands of sound banks (see Resources). It has unlimited MIDI tracks and is usable with almost any control surface. The user interface is easy, and it is fast becoming the industry standard.
Reason 4.0 works seamlessly with PropellerHeads' new software Record, which records analog signal (voice, guitar, drums, etc.) with the use of an audio interface. This software allows you to master simultaneously sequenced tracks and analog tracks. It exports as WAV or AIFF files, and can be cut via a CD/DVD burner.
Most interfaces come with MIDI interfaces in them, so separate units are not necessary. You can get as small as 2x2 break out boxes to 8x8 (inputs) for under $500. PreSonus makes good units (see Resources).
In addition to headphones, you will need powered reference monitors to hear your music. Alesis makes a small but powerful line of monitors (see Resources). Many other companies have good products as well, and 20 to 40 watts should suffice for any home studio.