I use Reaper. It's incredibly inexpensive, with a long trial period, and fully functional.
Pro Tools has a Lite version you might want to look into. N Track also has a trial version, I believe. My band's singer prefers N-Track, I prefer Reaper.
All three support VST and midi.
Upgrade your soundcard, and consider an external mixer (Behringer makes a decent 4-channel mixer for less than 50$ that I use for very very decent results). Make sure you've got a decent microphone... a Shure SM57, for instance, or a Samson CO1 (both are 100$ or less), the first is dynamic and the second condensor. For a "clean" and detailed sound I prefer condensors going into a mixer with phantom power, if you want a more traditional colored and limited guitar sound go with a dynamic mic. You can use a mic preamp, but usually if you aren't using a high quality (1000$ plus) preamp you'll get coloration rather than clarity. Just be aware...
As far as programs that you can buy... the absolute best program that I have ever used is Samplitude. It's expensive ( something like 1400$!!!) but it is incredibly high quality. It blows Pro Tools away, no question in my mind. Built in convolution, excellent visual parametric EQ, reverb, at least three different types of highly-adjustable compression (including a very nice optical!), and that's just the beginning.
I miss it. I had to crash-course learn how to use it to mix my band's demo cuz the engineer wasn't used to heavy metal, and wasn't sure how to push the dB's into the red the way I wanted... but that's another story.
I suggest starting with something cheaper (or free) and see what you can do, before you sink a grand and a half into recording software. Especially if you don't have the sound card (ASIO drivers!) to really take advantage of good quality software.
Saul