I have a Line 6 toneport. The one with the mic, guitar input, and headphone jack. I also have a bad USB becuase I'm still running a '98.

If I buy Audacity and use the Line 6 Toneport, will that work for recording and posting it o my band's website?
should work

the interface normally works with any software.
you may want to upgrade your computer some day....they are cheap now.

keep an eye out at slickdeals.net for a good deal on a desktop from Circuit City. I got my Acer As[pire T180 for just $200 and added RAM from 512MB to 2GB and also added a graphics card for games (but its not needed.)

it does come with vista though which isnt working with the Toneports yet so do get yourself some XP Pro to put on it for now.
With the Toneport, everyone should ba able to record their instrument independantly, then layer them with the software right? Sounds lame, but were under-budget right now.

Also with the '98 and Audacity, I shouldn't run into compatability issues right?
98 should be able tol run audacity

yes each band member will record their own part

start with a click track and have the drummer record to that set tempo
then take out the click and have the bass or guitar player play to the drums and keep stacking each track up on each other.

in the end you will have a different track for each instrument you recorded.

I'm guessing you will be using a UX1...right?
even so, the two TonePorts only have two inputs and so that may be a little hard to mic an acoustic drum set with.
you may want to get a mixer like the Yamaha MG series later on and use that to feed a full mic set for the drums into one or two of the inputs on the TonePort.