Hi Jim
I use Her Web Host: HerWebHost.com or
http://www.WebServiceNetwork.com/hosting.htm
It's $8.95/month, no set-up fee and no contract - tons of features. I've been very pleased with the service, and set many of my clients up on this host as well. I've known the owner, Kathleen, since 1997 and she runs a pretty tight business.
As for merchant accounts, you could easily set up a PayPal shopping cart with no upfront costs (a percentage per sale), which is fairly popular. I've heard many who are happy with Mals-e as well, though I dont have any personal experience with them. The link is:
http://www.mals-e.com/