Hi James
I've recorded with my laptop using a cheap Logitech microphone and the free open source software Audacity (you can find it at sourceforge.net . Quality is generally reasonable, although do a test run first. You can save files as mp3s but you need to download an additional encoder called lame.dll (just put download lame.dll into Google). This is fine, provided you are not moving around or interviewing a group.
For other interviews, I used a relatively inexpensive digital voice recorder (cost £40) which holds up to 2 and a half hours of reasonable quality audio. I used an Olympus VN-480 PC model.
Both options were fine when it came to transcribing. Hope this helps.