Hi,
I just started on this software-based approach in August with Garriton Personal Orchestra, after too, looking around for the "perfect workstation.

GPO, IMHO is definitely worth checking out. For $250 you get everything you need to get up and running, though you'll probably want to upgrade from the included soft notation program and sequencer.

As a registered GPO user I was then able to get a reduced price on Kontakt, Native Instruments flagship sampler and editor, which has its own included sample library. Some say the library's not all that great, but I think it has some very usable nylon, 12 string, and steel string guitars, as well as basses and percussive voices.

I've since purchased some "ethnic" instrument samples to round out my set, such as banjo, bagpipes, Chinese gong, etc. One nice thing about the high-end samplers such as Kontakt, Halion, or GigaStudio is that they have conversion features so you can make one developer's proprietary format compatible with another's.

I also got Cakewalk's Sonar to sequence/record tracks, and use both a Yamaha P120(a hammer weighted 88 key digital piano) and an Evoluton MK461 midi controller (no weighted response, but has lots of assignable midi controller knobs, faders, and such.) They're both plugged into my PC, and I tend to use the Yamaha for "percussive" voices, (including of course piano), and the light midi controller for "expressive" solo voices like violins or whatever.

I don't know this is the best way to do it, it's just what I've sort of stumbled into, and it seems to work great. Possible drawbacks before going this route include:

1) There's most definitely a front-end tech learning curve, and sometimes I'm farting around with technical issues when I'd rather just be playing music.
2) It does make powerful demands on the computer. 1GB of RAM (all that my Dell supports) doesn't seem like nearly as much as it used to. Plus, if my motherboard fries or something, I'm out of business. People who have been seriously doing this for a while, or are doing it professionally, usually have more than one computer for this with 2nd hard drives, back-ups, and all of that.

But your sound libraries can be built incrementally, and sonic samples exist galore at all price ranges, including free. I just know that I'm committed to going this route because you're not limited to one platform, and the sounds can be incredible. So I've no regrets. I'm just continuing to work on it until I can use all of these new tools seemlessly and well.

Good luck, and check out especially Frank and Rikki's posts here on the subject.