First, Rock BAND IS Way cooler and you will love being able to jam guitar while she sings, plus with weekly downloadable songs you always have new stuff to play. They just announced 6 albums that will be available in the next few months by Foo Fighers, Stevie Ray Vaughn, Jane's Addiction, Red Hot Chili Peppers in addition to the ones they have already released from Boston, the Cars, the Who, Rush and Judas Priest. It is crazy how many great tunes from various Genre's are in this game.
As for the instruments, you can definitely buy the mic and guitars separately. On XBOX the Guitar Hero guitars work so I still use my old GH one which is much better than the one that came with the Rock Band One bundle.
You will love it... rock ON.