I've been podcasting for over three years and would be more than happy to dole out some advice if you like.
My friends and I (distributed all over the US) have been doing our video game podcast Video Game Hangover and have found great success on a limited budget. I do all of the post production work, our setup is as follows:
1) Snowball mic:
http://www.amazon.com/Blue-Microphones-Snowball-Microphone-Textured/dp/B000EOPQ7E
You want a decent microphone so the raw recording quality is good. Nothing too crazy will suffice but I don't recommend using a gaming headset or anything like that. A pop filter is also recommended for your setup.
2) Audacity:
http://audacity.sourceforge.net/
I do all of our post production using Audacity to clean up any background noise and make any edits. It's free and over the past few years I've managed to squeeze out (IMO), a pretty high quality show considering we use open source software, and $60 mics.
If you'd like tips on what I do to clean up the audio send me a PM, I'd be happy to share.
3) Skype - we use skype to meet up and record our individual tracks locally. We've tried using software like Pamela to record live while doing skype meetings, but I've found that recording locally gives you the best raw recordings. Software like Pamela is easy to use but the end result is tinny and we only use it for interviews when necessary.
4) Libsyn -
http://www.libsyn.com/
All of our shows are hosted on libsyn and their monthly plans are quite reasonable. They have a nice UI which makes publishing a show a rather painless thing to do. I highly recommend their service, it's great.
Check out my show if you want to see some of our work:
www.vghangover.com and I'd be more than happy to go into details about how we get things done. Good luck!