Its been awhile since I had my photography studio, but I doubt that the basics have really changed all that much, so here's a few things I'd suggest getting or checking into.

1. as much as you can, paint that room white, or off white... all of it, floor to ceiling. Not a hi gloss -- more semi-matt. This will help the lighting problem and save you some bucks by being able to use soft boxes and bounce umbrella units and bounce lighting in general.

2. to have a couple of backgrounds the cheap way (and I've done it and it works) ... rig up a couple of clotheslines using thick braided wire, as high up as you can get them, and still allow room to pull across material backgrounds. Make these wires as tight as you can.

Buy both white and black material at a fabric shop ... enough that you can go floor to ceiling and the full width of your available wall space on the one wall in each color .. and basically make big shower curtains out of each color ... you can even use those handy clip on metal shower curtain hooks to hang them from your wire clotheslines. The material should be a rather dense weave, but you can certainly use cotton blends, all cotton would be too heavy physically as well as not hang/drape nicely. You can also to this to 2 or 3 walls if you anticipate "corner" decor/shots.

3. check into a professional seamless background as well.... something thats got the grey/blues cloudy soft look. If poor - I've bought plastic fabric and made my own using acrylics and sponges. Just staple it onto a large wooden rod and rig it up AGAINST the wall with drop in cup hooks like they use for closet poles. Your material backgrounds should hang to the front of the painted one.

4. Lights can be a simple 2 - 3 light studio system, with stands, and as I mentioned above, employ either soft boxes or umbrellas. A back light can be handled with a simple shoe mount flash on a short stand that has a remote sensor attached.

5. While digital cameras are supposed to "read" your light automatically, I'm of the old school ... get and learn to use a hand held light meter!

For more help, you can check these out:
Digital studio on a budget
Lighting Systems

As to Location photography .......YES!!!!!!!!!!!!!! I am so sick of pics that are couples on couches, floors and beds ... get them outdoors and use those weird and "different" areas near you! And one quick note about outdoor pics ... try to do them on an overcast day, or in a way that keeps them out of direct, high in the sky sunlight to avoid unsightly shadows. And use fill flash!

Good luck!