That question's too all-encompassing. There are so many questions that would need to be asked and answered, but for 1,000 squids, I don't think you're going to go very far unless the individual band members already own some of their own microphones, etc. Also important to consider: are you doing it for fun and to keep a 'record' of your accomplishments, or do you want to try making full-on indie releases with your gear? You can probably afford to spend more on your gear if it's going to be for full productions (using the budget you would have used for studio time), but there's no point spending TOO much if it's primarily for fun.
Your biggest cost will be (or should be) your monitors, microphones, and mic pre-amp, if you want to avoid crappy final product.
Take microphones, for instance: you could mic a drum kit with 2 overhead mics if that's what you really wanted to do; however, it's better done with around 5 microphones, usually different kinds with different specialized functions. An entry-level set of drum mics could end up costing a third of your budget and that's only for entry level. If it's vocal-based music, you probably want at least a mediocre microphone for your lead singer, too, which will cost another 80 quid just for the most entry-level of acceptable microphones (example, the Studio Projects B1). None of these will be well served by an el-cheapo pre-amp.
Guitars-- mic'd or using virtual amps like the POD? If they're mic'd, you'll need to come up with some sort of makeshift isolation area so that the room reflections don't mess up the signal (though, in the right room, they could actually help).
I don't want to get much more into it than that because there's a world of tips out there. The reason you're feeling confused is probably because you're trying to mate the advice in this thread (which is primarily for people doing it for fun and recording one or a few instruments at a time) with your own personal (and different!) needs.
Greg