Hardware

• Motherboard with a minimum processor speed of 1GHz - the whiz-bangs that run faster than 2 GHz are neat, but not the best buy at the moment. Intel is good, but my AMD Athlon (Update - and Pentium 4 on the latest) runs everything I have.
• RAM is very important, get at least 256 MB; 512 is better, especially for large artwork like covers! (Update - prices have dropped and requirements have jumped - if you are going to be doing anything more than simple word processing, such as graphics for book covers, get a minimum of 1 Gig)
• Most new motherboards come with integrated video, network adapter and sound card, or at least bundled in a system deal - and of course make sure you have a modem for dial-up access or a router/hub for DSL. Now that the manufacturers have improved the security aspects, you can easily connect your DSL line to several computers and link to your printers with a wireless Local Area Network (LAN). But DO NOT bypass the security procedures!
• Read and Write compact disc drive - often called a burner by those who love jargon - for backups, transfer of large files and to record legally obtained  music;
• Get some speakers to listen to the cool music - not required, but helps get by the bad days;
• Every new computer has USB connections - critical for easy connection of things like scanners, printers, cameras, or to sync that new PDA;
• Minimum of 80 GHz hard drive - I use two 80's, one for backups; (Update - 250 gig hard drives are a good buy in 2007)
• Old style monitors are still the best buy for a large screen (19 inch or 21 inch) - but flat panel display prices are dropping to an affordable level. I recently caught one on rebate - a 17' for about $200, but that was an exceptional deal. (Update - buy a flat panel)
• Foolish as it may sound, I am sold on my wireless mouse and keyboard - keeps me from getting all tangled and didn't cost too much - but also some serious security implications here, just like your cordless phone;
• DO NOT forget to protect your system with a good uninterruptible power supply (UPS) that provides surge protection across both the power and phones lines. I'm in Florida and have already lost a bunch of stuff to a direct lightning strike, and even brown-outs can upset some electronics.
• All the above can be bought retail as a system for about $500 or less. Recently, Dell (Update - and HP) has been making some great offers, with great bargains on included office software.

A quality (but still less than $100) ink jet printer will do both your color and black and white work, but you will soon find that the cost of replacement ink cartridges begin to add up with a lot of printing. If you are also doing a lot of black and white (like manuscripts) a $500 or less laser printer will be a great workhorse, leaving the ink jet printer for the occasional color job. Good flatbed scanners are down to less than $100 to scan in art work and traditional photos. A digital camera of at least 2.0MG pixel resolution is adequate for web use, but 5MP are less than $250 and will produce great 11/14 prints. I use the fax software that came with my modem and do not use a separate desktop fax. Microsoft XP has built-in fax capability to use with your modem.

And yes, I did not mention any Apple products. If you enjoy this particular never-ending discussion/argument, check out my view at Win/Mac.

If you are handy with a screwdriver and understand the danger (to your pocketbook) of static electricity, you can put together a barebones package for a few hundred dollars. Check the discount buys - just search Google for barebones systems.

Software

( Note:  scanners, cameras, modems CD burners and other hardware often bundle in free software - pay attention to this when you buy - you can save a bunch)

• A Windows XP 2007 (ed. - now VISTA is the latest thing - but the discussion applies) Home Operating System (click for more on Windows and Microsoft) should come preloaded on a new system. Bought separately, expect it to add about $100 to the system cost.  I have used XP and all the previous versions going back to Windows 1.0, and XP seems to be a bit less buggy and virus-vulnerable. Make the jump to XP and you'll be glad. If you are really bold, go with Linux rather than Windows - a far technological leap for most of us, but Linux can be purchased for much less, or even legally downloaded at no cost if you have the technical savvy to load, configure and operate the system, then search out the needed application programs.
• A little heresy, but I suggest looking at  the OpenOffice.org 1.1 suite rather than shelling out the couple of hundred bucks or so to buy Microsoft Office. The OpenOffice.org software runs under either Windows, Mac OS or Linux.
  ....AND IT'S FREE!
  It also contains an integral capability to convert files to PDF and Palm-readable formats, great if you are building eBooks.
  Unlike Microsoft Office,  Open Office (and its commercially available cousin, Star Office) does not include a personal information management (PIM) program such as Microsoft Outlook, but even better browser and mail programs are also free from Mozilla.org and Gnome.com. Also, the Palm Desktop that comes with any of the Palm PDA's also includes an excellent PIM capability, which of course easily syncs with the Palm PDAs. After all that, I must confess that I have stuck with the Microsoft line - the relatively ease of integration and interoperability, features and support are worth the price to me.
• Ulead's PhotoImpact - which came as a freebie with my HP slide scanner - is an excellent graphics program for my needs - comparable to Adobe or Corel products, at a much  lower price, even if you buy at retail.
• In addition to Mozilla, Microsoft and Netscape are still duking it out over Internet web browsers. For us consumers, the good news is that Netscape for Windows or Linux is still free, or if you have Microsoft Windows, Internet Explorer is still bundled with Windows and available as a free download - at least until the next court order. Both these products also include good email programs and address books. I'll confess, though. I have been spoiled by the integrated contacts list and calendar that Microsoft Outlook - a Microsoft Office component or stand-alone application -  provides, plus its easy sync with my Palm PDA.
• And until someone invents a perfect system, I will continue to use Norton's System Works to keep the gremlins out of my bits and bytes. (2007 Update - I have been using Microsoft One Live Care for about six months - expect to go back to Norton 360 in Jun 07) And you MUST !!! have an antivirus program running at all times to protect your email and a firewall to protect any DSL entry, especially if you are using Windows.  I receive scads of infected malicious emails each day that Norton kicks out for me that would otherwise disable my system. Norton and McAfee both offer good A-V programs. Watch for rebates/sales on these products. AVG also offers a free A-V program worth trying.
• If you are going to layout your own POD books you must have a profession-quality publishing program such as Adobe PageMaker (out of production but still available at discount outlets for as little as $50.) or one of their even higher-priced alternatives such as Adobe InDesign or Corel Ventura. (Update - Microsoft Publisher seems to be the lowest priced adequate page layout program on the market - packages with some of the more expensive Office suites) PageMaker has a steep learning curve for the occasional user, but I have not found an adequate substitute (and I have tried). In addition to the page layout functions, PageMaker includes a conversion to Acrobat PDF format that is required by many POD printers and ebook services.
• I use Microsoft FrontPage to build my web sites, and as with the other packages, there are other similar software packages on the market.
• Much useful "freeware" and relatively inexpensive "shareware" packages also are available from sites such as ZDNet.

So expect to spend at least $300 for your basic software, not including PageMaker, which will run you another $50 or so. See why I tout the free software! AND DO NOT PIRATE THE STUFF! Cheap/free alternatives are too good to sully your ethical standards.