Where to start? :)
First off, you're not gonna be able to capture your sound very well with a £10 microphone, so that's likely the first weak point in your chain.
As you probably know Shure SM57s are kinda the industry standard for recording guitars, but the Audix i5 seems good too (definitely want to get one of these next). Andy Sneap (ex-Sabbat guitarist, and metal producer extraordinare) did a few decent mic/speaker combination demos over at his forum that are quite interesting to hear:
http://www.ultimatemetal.com/forum/showthread.php?t=213350The next stage of the chain is of course the mic pre's. I'm guessing you're just going straight into the soundcard here? With a decent mic you'll also need a decent pre to boost the level. I'm currently use the pre's on my Soundcraft M8 mixer, which is not ideal (it's a bit bulky), but works well.
Your soundcard will also probably be a weak link due to it's ADDA convertors. Budget PC sound cards really aren't ideal (or even designed) for recording purposes. I'd recommend looking into upgrading this if you want to start recording at home properly. It's especially important to get something that has very low latency when monitoring through it, otherwise you'll never be able to play in time with what you recored, and will have to shunt audio tracks by several millisecs all the time (been there, done that, never want to go back ;))
As to makes of soundcard. I really like the M-Audio cards, which are extremely good quality for the price. I use a Delta 1010 myself, but they also do cheaper USB or FireWire interfaces. FireWire is preferable IMHO, even if you have to buy a FireWire card too, as it has more bandwidth and is more efficient than USB. I think they also do cards with a mic pre built in, so you could kill 2 birds with one stone. :)
Software wise, I'm a big fan of Cakewalk SONAR (using version 5 Producer here), but that's quite expensive. I tried Cubase a few years ago and really didn't like it much.
What kind of spec is your PC BTW?
HTH
Muttley