Almost everything I learned about photographing my cakes started here:
I have a regular digital camera but I made sure it had a manual macro setting when I bought it. I think it was under $400.
I use Picasa to do basic edits like simple color/exposure adjustments and Photoshop for stuff I need to clean up and to add my logo. I also have Lightroom but am still learning how to use it.
If you have the room for the set up, you can also buy all-in-one studio set-ups like this: http://www.amazon.com/Perfect-Platinum-Backgrounds-Product-Photography/dp/B000OZRFR2/ref=pd_sim_ac_1
I have a bigger one but it was about $100 on Amazon - I can't find the link.
There are also tutorials online for DIY lightboxes out of cardboard boxes and tissue paper.