I bought a tent and light kit for $75 off a seller on Ebay:
I use a black backdrop (included in the above kit) and the acrylic watch stands to hold my watches. I also purchased these off of Ebay.
I place my Pentax Optio S4 (5Megapixel point-shoot) on a tripod at the tent opening. (I really want to get a digital SLR so I can use filters and have standard manual adjustable features, like shutter speed and aperature)
I use Microsoft's Digital Image Suite software (i'm using version 7, but version 10 is now available) to adjust the image contrast/brightness and clean up dust particles (which become very obvious using the macro setting and bright tangential lighting.)