I do in fact have a little home studio, I have a mixer (4 mic/2 stereo line) plugged into my sound card's line in (Turtle Beach Santa Cruz). Some of the people I've seen trying to record with their computer don't know too much about what they're doing and to successfully practice the trade you need to take a lot of time out playing around with things, reading articles online (I frequently search Google when I need something) and of course, RTFM (read the manual) of the program you are using. It takes a lot of tweaking with volumes and such to get the leves set with no clipping. I strongly suggest you get at least a small mixer (mine was only $99) with an adequate level meter because I don't know what I would do without those indicator lights telling me how much I'm driving the sound card's inputs. After some careful testing, I came to the conclusion that my card starts to distort when put more than +6db into it (no matter where the volume sliders in the software mixer are set to) because that's all that the circuitry can handle. See, if I just had a keyboard plugged into the sound card, I would never know how loud the signal is (this is all before the A/D (analog to digital) converter mind you). Now I can watch the lights on the mixer to make sure I don't drive it harder than +6db.
Now comes the setup phase of the process (after the A/D converter). Digital level meters (such as in your recording program) always go up to 0db and only operate in the negative range. Thus, a signal of +4db going into the line in really gets saved as -2db (2 less than the top of the scale in both places). UNLESS--you have the software mixer's Recording Level set to something other than the middle (where it keeps things even). This is where heavy testing comes in. What I did was get out my test tones CD (came with my Behringer mixer), run a tone from a CD player into the mixer, adjusted the mixer's volume knob so I was sending +6db into the sound card, and then watched the software's "VU Meter". I then proceded to adjust the Recording Level control of the line in until that VU Meter reached 0. That should be about it, but remember some of these numbers i gave you only apply to my sound card.
Now we're ready to record. Just plug your microphone (I recommend the Shure SM-58 if you don't already have one) into the mixer, as well as any keyboards, guitars, etc. With guitars you have a few options.
1. Go from the guitar to any effects pedals (optional of course) to the mixer's mic input (a guitar's signal is about the level of a mic).
2. Go from the guitar to any effects pedals to the amp and then go from the amp's Line Out of Headphones Out directly to the mixer's line input (but be very careful how loud your signal is coming out of the amp).
3. Have it all set up with the amp and then just place a mic in front of the amp.
Number 1 gets you the least noise, number 2 lets you use any effects your amp might offer, and number 3 is if your amp (or its speaker) really has a distinct sound that you can only keep by doing it like this. Now get every channel's volume set right (so the mixer's volume meter regularly peaks around maybe 0db, and rarely gets close to +4 or +6 (this will keep clipping to a minimum while still driving it enough that no audio quality is lost). Now you can click "record" in your program and give it a try!
One major problem with recording to a computer is that you (in most cases) only have 2 channels to work with (the Left and Right of the line in). If all you're doing is guitar and vocals, this is fine, just pan the vocals to one side (on the mixer) and the guitar to the other side. This lets each thing be recorded independently so they can be mixed together later (you will need to be fluent with your recording software to do this). But if you have more than that, it's basicaly a guessing game at how loud certain things should be. When I ordered my computer (from Dell) I selected the Turtle Beach Santa Cruz because I'd heard good things about it, but it came with a surprise that I never would've expected. It had 2 line-ins that could be recorded totally independent of one another! Actually, the second input is what they call a "Versa-Jack" because, through the software, you can map it to do a few different things (secondary input being one of them). Then in my recording program (I like n-Track Studio) I just select both devices (regular input and "secondary" input) and I now have a total of 4 independent tracks to work with (L, R, L, R) so the volume levels of each of them can be adjusted after recording it, as well applying any effects to them (independently of course), as well as the L/R balance of each them in the final mixdown! This can also be acomplished by simply adding another sound card(s) to your system, although you could potentially run into sync problems. To find out more about all this, search around the internet, audio forums, etc. That's how I did it!
I hope this gives you a good head start on your home studio, but as I said, read up on it whenever you can. Knowledge is everything.