Sorry for the initial smart-ass remarks, Brooklover. I usually just spout off the first thing that comes to mind. It doesn't serve me much better now than it did in grade school.
Others have given good advice. Another good company for starter rods is Cortland. They specialize in affordable, good quality equipment. My feeling is that until your equipment limits your performance more than your own lack of ability does, there is no good reason to step up to something better. I recently saw a nice Cortland starter rod, reel, and line combo retailing about $140. The line on the reel was 444, line that normally retails around $45 per spool. If they're willing to put that line in the combo, I'm sure it's an adequate rod and reel for a beginner.
Make sure you get a rod and line weight that suits the water you intend to fish. If you like to fish really small water, you might want to go as low as a 3-wt, but that could make casting any distance a challenge at first. The most versatile rod and line, in my opinion, is 5-wt. That will allow you to comfortably fish for trout in all but the tightest venues. A good compromise might be a 4-wt, but I wouldn't recommend lighter than that for a beginner. Again, though, that's just me.
As for flies, it is worth the extra money to buy them from a reputable fly shop. Don't spend $100 on flies in a shop, though, before you've fished a few of their flies first. Even good shops often import their flies from who-knows-where, and they may or may not be worth the asking price. Try a few of them first and make sure they don't fall apart after a fish or two (that might prove a frustratingly difficult test to administer, though!). All patterns have different durability, but I expect my hooks to wear out before the fly that's tied on them does.
Finally, if you want to upgrade from recreational experimentation to full-fledged heroinesque addiction, start tying your own flies. I outfitted my brother to tie his 12 favorite patterns for less than $100, including vise and hooks - it can be done on the cheap if you ONLY BUY WHAT YOU NEED. Then, as your needs and (mostly) wants dictate, you can add to your repertoire of materials. Even if you still buy certain flies from the shop, there is simply no reason to be purchasing things like muskrat nymphs, shrimp, and Walt's worms (and you could consistently catch fish on those three flies on virtually every stream in PA). Good dry fly necks are very expensive, so you may want to buy your dries in a shop at first, but they do sell small bags of quality hackle that you can use to cut your teeth on dries before you decide whether to dive into the money pit of quality necks.
One last last thing. Going into your average flyshop is much like going into your average car dealership. If you walk in with $1000 to blow, the salesman will be more than happy to oblige you. So know how much you're willing to spend in TOTAL before you walk through the door, and make that clear to whomever is helping you. There are ways to blow a LOT of cash on flyfishing (like buying my flies), but you don't HAVE to blow a lot of cash to be able to thoroughly enjoy the sport, so don't let anyone convince you that you do.
-I'm Shawn and I am an addict.