I have a very small and simple setup I use for photographing my flies. It certainly has its limitations, but I only have about $2-3 invested in it and works for my purposes. It consists of two pieces of 1.5 inch thick foam (of any sort). I cut one in a circle for the background and one as a square for the base. The reflecting surface is poster board that has a shiny surface and I taped a piece of reflective card stock to the circle. A wooden dowel goes through the foam to connect them. I cut a notch in the poster board reflector for my vise and cut most of the top off to allow me to shine my tying lamp down through it. I have seen similar contraptions made from bleach bottles, which are quite a bit bigger. (This explanation sucks, I hope you all get the point.)
Here it is

The light is a halogen desk light from Wal-Mart that costs $11.88. It is my tying light as well.

I used to keep the light on top of the desk (as pictured), but now just move it down on the tying surface and get it as close as I can. I never use a flash as it is overkill. The light seems to be pretty natural in the pics.

Here are a couple examples of pics I've taken with this setup.


One of the limitations due to the size is sometimes the edges of the "box" make it into the picture. This could be fixed if I would just sit down and make a bigger one.