Can someone give me a quick opinion on whether to buy the full version of Cubase 4 or settle for one on the cheaper versions?

I want to record demos, using guitars/bass, drum machine (be that a hardware or software) and synth (hardware and software).

The only real differences that struck me on the table available on the steinberg website was the difference in number of midi channels, number of vst plugins and lack of the control room functions.

However, it said no support of external instruments (what does that mean?)

As someone using it to produce music on a non-commerical level (I just want to record my own/bands music), is it worth having all the bells and whistles?

My "Rig":

Fender American Telecaster
Boss OD-2
EHX Small Clone
For rather simple user requirements like yours, the Essential version should be fine. It is always nice to have the bells and whistles, but scanning the feature comparison charts, there isn't anything that made my eyes bug out in terms of missing critical features.

Could I get some more talent in the monitors, please?

I know it sounds crazy, but try to learn to inhale your voice. www.thebelcantotechnique.com

Chris is the king of relating music things to other objects in real life.