Cardioidpotent said:
If what you want is a place to record your band so that some of your friends might hear it and say, hey that's cool, then that's a different story.
Well put.
Actually, I don't think it's at all out of the question to think that one might be able to get a very high quality sound out of a small room with low ceilings. It's just going to be tricky ... will take a lot of work, and it won't be cheap.
You'd probably want to start out by lining your ceilings with rigid fiberglass insulation panels. If you don't want to be the next
Great White and have a major potential fire hazzard on your hands, then you'll want to cover them with some sort of flame resistant material. From there, you might also want to line every other wall with the same stuff. If the ceiling and walls are done well enough, then you might not even need to bother with the floor, although it might not be a bad idea to think about having some very thick rugs on hand just in case.
From my experience, in a small room with low ceilings, your best bet is to make it dead, and find other means (digital reverbs, re-amping, etc.) to add artificial space after the fact. This is a very general statement obviously, but you did say you wanted to get there as cheaply as possible. This is where your vast knowlege and skills as an audio engineer will come in to play.

( And judging from your initial post, I'm guessing this is where you're probably going to need the most work; no offense intended -- we were all green at one time, and asked the same questions ).
The real trick is going to be the drums. If your goal is to get a totally dead drum sound ala
the Band or (Neil Young)
Harvest Moon, then the dead space can actually work to your advantage. But if you want it to sound like Bonham, it's going to be tricky, and will require a lot of work "in post" to get there. In other words, get ready to spend the next few years learning the craft, because it will take some time and experimentation if you want it to sound good. And even then, it will never sound the same as if you had tracked in a large space to begin with -- nor will you have the same mic'ing techniques avaiable to you (you'll only have various degrees ranging from close to "very close").
One avenue you might consider would be to find someplace reasonable (doesn't have to be fancy -- just a decent studio with a nice, open room) where you can track your drums, and convert your basement practice space in to an "overdub" studio where you can track guitars, bass, vocals, etc.
Good luck.
.