wow - no mention of ACID...
I make electronic music -->
http://www.ArtistServer.com/SonicWallpaper
and use a few different apps, and also have a hardware rig that's based around a hardware sequencer.
============
There's so many apps out there that you could use - there's several for free - and many have demos for you to try out. I suggest you trying at least 4 different apps before buying one. You'll need to find what feels comfortable for you.
>>> I'd like to be able to select from a vast array of instruments to play
It sounds to me that it will be key that you find something that supports VSTi - VST instruments. There's a ton of them out there for FREE - many that emulate old synths, there's on that's a chanting monk and I'm currently building a track around a cello VSTi - that I dloaded for free.
I think you'd be happy w/ a VSTi Sampler w/ a good sampler library, a collection of free VSTi's from the Web, and a copy of ACID PRO.
For the sampler - there's Sample Tank, and there's Kontak from Native Instruments.
Yes, ACID does work fairly well w/ midi - it's a strange method, but if you can work in terms of 'non-linear' recording - then you'll do fine. You can certainly record in multiple Midi tracks via your keyboard that are linear - running the full length of your track - but the 'methodology' in ACID, is loop sections, chunks and bits of progressions that you create or record.
on the audio side of things - you can record in audio - and if you have an audio editor, you can chop up the recorded audio and reimport it back in - or use the 'chopper' tool in ACID and extract from your recording what you want.
ACID's strongest point, is it's looping tools. Unfortunately, they are so good, that too many people rely on them and the defaul settings
The looping tools are very flexible, giveing you room to play with sounds without having to do time stretching in an audio editor.
Loops aren't the only game - you can have 1-offs, or disk based samples - which are usually large and long files.
I can record midi data from a keyboard or my guitar right into ACID, but most of the time, I build progressions, melodies and drum patterns by hand.
Can Acid handle a lot? Yes
I've had over 60 channels of audio with 4 different effects plugins running, 3 VSTis runnings and 4 channels of midi - all on a 1Ghz box w/ 512MB of RAM.
-----------
And as for FruityLoops... I know many people who ROCK in that app... and I just couldn't get things happening... although, I've heard people say that ACID wasn't stimulating. To me, I like that ACID is a blank page and that it doesn't have it's own sounds, etc. It forces you to discover your own sound.
-------------
I never have any trouble w/ latency w/ MIDI over USB - using USB1 or USB2. I also use the same USB device for audio, running 2ch in and out.
>>>> Basically anything from M-Audio is a good choice
If you search around, you'll find there's been a long history of users with problems w/ M-Audio equip. Before you buy, search and read - and make sure that the driver's are up to date and not buggy.
=============
What you should really look into is REASON - I just jammed w/ it the other day w/ a friend. it's by Properllerheads - and it does have it's own sounds, and you can import samples - and you can record midi right in. you can work in a loopy mode - or linear - and there's a growing collection of "ReFills" out there - which are Reason Sample/sound banks bundled into a collection.
lastly - people unload their older audio/midi apps on Ebay sometimes - so maybe look into that if you are short on cash. I'm sure you'll find a sound card w/ midi for a deal.
I'll come by and check this thread again in a day or so and see if there's any reply or questions.
=====================
BTW - if anyone wants an audio/music producer for their game, let me know what you have going on and we'll see if it's a fit. I play guitar, bass, keys, and compose a wide range of styles.