I use Adobe Audition (ex-Cool edit Pro). I upgraded when they got bought .. which was a mistake, I don't need most of the new features anyway. I've heard some great things about "Audacity" which is freeware. I know guys that uses it and they do amazing stuff with it. So I'de suggest taking time to look at that solution.

My rig is quite simple.

Guitar -> Zoom 2.1U -> Behringer Tubecomposer -> Alto mixer -> computer (line-in)

You could do without the Behringer but I love it. I use it has a compressor and I can add tube warmth to my tone. You can usually get them for pretty cheap. I got mine new for around 200$ CND.
http://www.behringer.com/T1952/index.cfm?lang=eng


The Alto mixer is a AMX-100FX.
http://www.directproaudio.com/product.cfm?directid=55513

Very cheap but has a built-in pre-amp and multi effects. I bought this one because I wanted to be able to use a mic if I ever needed to. Also, it's great when friends come to jam, I can hook them up and record the session.