Hey...my knowledge is limited but I will take my experience so far (and what I have read here) and give it a try and others might want to refine my advice...
A good first mic seems to be the Shure SM57 (around $100)...It is great for edgy, in-your-face recording (electric guitar amps, screaming vocals) and is probably in every pro studio. (If money is really tight, probably any mic from Musician's Friend/musiciansfriend.com will beat your $12 mic)
You should not be recording with your mic plugged into your mic-in jack (on your computer soundcard)...the mic-in on soundcards are generally not made for music recording...you need to plug your mic into a mixer (these can range in price from a free discarded 4-track, to a $40 Behringer, to a $100 Yamaha, to the sky, according to your needs), your mixer is plugged into the line-in of your soundcard. You might have to spend $10 for stuff from Radio Shack to make the connections work.
If you are using the "stock" soundcard that came with your computer you might want to consider getting a different soundcard (some reputable ones from M-Audio and Emu start at $100)
If you are listening on tiny computer speakers you should upgrade...you might want to consider monitor speakers made especially for the purpose of mixing music (some here are quite happy with monitors in the $300 - $350 area, from makers such as M-Audio and Wharfedale)
I don't have all the above but that is my idea of a plan for better recording. Hope this helps you.
