You can do a little readng on knives and there are various opnions on what is best, but I'll just summarize here:
Stainless vs. High Carbon Steel
Stainless is well, stainless. It's softer, it's easier to sharpen, and it's easier to maintain. High carbon steel will discolour and develop a patina, and will rust if you like leaving it in salt water. High carbon is harder, more difficult to sharpen, but it will hold its edge longer and you can get it sharper than a stainless blade.
My recommendation is to get a Japanese made stainless blade. It has all the benefits of stainless steel, but the Japanese generally temper their steels harder than others (American/German) so you get the benefits of high carbon as well.
Sets vs Non-Sets
Small sets are good. Large sets generally include a bunch of stuff you don't want.
Storage and Maintenance
Please sharpen and store your blades carefully. A magnetic strip you hang on your wall is a good idea. You should also get a hone (also called a steel) for honing your blade after you use it. Unless it is called a sharpening steel, these do not actually sharpen your blade, but rather re-align the edge, slowing the dulling process. If you want to sharpen your blades as well, a nice combination waterstone is a good investment.
What Should I Get?
Minimum: Chef's knife, paring knife.
Good Set: Add a santoku knife, a carving knife, and a second paring knife of different size (sometimes called a utility knife)
If you have the cash: Add a cleaver, a meat fork, and a good pair of kitchen scissors
$189 starter set:
http://www.cutleryandmore.com/details.asp?SKU=10879
$249 gets you a little further:
http://www.cutleryandmore.com/details.asp?SKU=5900
$699 would be good if they dropped the bread knife, tomato knife and maybe the scissors:
http://www.cutleryandmore.com/details.asp?SKU=14176
edit: I have the Shun 8" chef's knife from these sets as my main workhorse. It's great. I just sharpened it and it practically fell through a russet potato.