Honestly, I don't know how you could have gone all these years using a hardware-based sequencer--for me, they're impossible.
Which is why I've always been a Cakewalk user. (I'm going to assume you're a PC user; if you're a Mac user this may not be relevant) The nice thing about the newer version of Cakewalk (and most of sequencers) is that they can record both MIDI sequences and audio. So, for example, you can record the output of your XP onto one track and add a vocal track to another. To do this, you'll need some kind of audio interface. If you have a newer generation sound card, it will probably do the trick. You also need to have a pretty modern PC (with at least 128mb RAM minimum) to be able to handle all of the processing.
I've just gotten into sound recording, and my strategy is going to be to record my MIDI and audio tracks first onto my Roland VS-840EX, and then transfer that audio into my computer for eventual pressing onto CD. I could record all of my sounds directly into the computer, but I keep my "big" computer in my study, and my MIDI rig in the basement. Plus, I just feel comfortable "singing" into a computer.
Anyway, the one thing you'll have to get used to with sequencing software of any kind is the concept of "Performances." If you want your XP to play multitimbrally, you'll need to understand how to set up "performances" where each "part" (guitar, bass, drums, etc.) you want to sequence is assigned to a separate MIDI channel. Then you record each part separately into your software sequencer, creating a template that reflects your "performance." There's a bit of a learning curve there, but once you "get" it it becomes second nature.
If you have more questions about this kind of stuff, you can e-mail as raisindot@yahoo.com. I'm no expert on this stuff, but I'm learning as I go along and can help understan what you're in for when you make the transition to software-based sequencing...
Jeff