I recommend Squiers. I don't see why people knock them, their quality control is close to the Mexican-made Fenders and for about $100 less. I own a Squier Affinity P-Bass and a Squier Standard Strat, and have a Squier Fat Tele on the way. True, there are some bad apples (as there are for any line of guitar), but you just have to play through them and find one you like. For your first guitar I'd recommend spending $50 more and get an Affinity Special instead of the Bullet (here's a
link). GuitarTrader.com has it for $150 with free shipping.
Squiers are usually the same size as Fenders, sometimes a bit smaller. They tend to be heavier I think because they started using agathis (an Indonesian pine I believe) instead of alder on the Mexican Fenders. The main difference is the pickup quality, the Fenders have better stock pickups, but with the $100 you saved you can buy even better ones than the Fender stock.
For amps, don't get the lower end Squier or Fender amps (I believe it's called the Frontman). They sound pretty bad. I read a review this morning for an amp called the Kustom Tube 12, which has a tube preamp and a name-brand speaker (Celestion) for $100. I'd recommend looking at that, or maybe a Vox Pathfinder.