Having worked with one recently I think the 20D would be a good choice. I use a Nikon D1, which at 2.7MP has plenty of resolution for high res jpegs on a website. The 20D would have more than enough resolution for webpics. I'd suggest putting a major fraction of the investment into the highest quality lens that you can afford for your application. You would probably need something with macro capability and a reputation for clarity. I use a 55mm micro-Nikkor for close up shots of small products. Certainly Cannon makes something of equal quality, and the 20D can also use Leitz lenses with an adapter. Skimping on the lens is a big mistake.
For lighting you can try one of the tent-type rigs that are marketed to e-commerce types. They are easy to light and give and nice even look to the product. Since I take shots of a model with a lot of our products, and since I shoot against a black background I have a larger setup composed of a few strobes and a couple of good sized soft boxes. The strobes are nice when working with a live model but you need a flash meter to set things up well. For product shots hot lights have the advantage of WYSIWYG. And the product won't complain about the hot lights like a model will.
To do this on the cheap you could hang some translucent white fabric around the staging table and use a couple of halogen work lights from Home Depot. Even lower powered lights like the cheap clip on work lamps can work great behind a good fabric diffusor. Just put one on each side and slightly in front of the product for starters. Since the subject isn't going to move, the length of the exposure is limited mostly by how much your CCD heats up and how badly the pixels clip with long exposures. We were taking 8 sec exposures with the 20D with good results. I've even done some decent long exposure shots with flashlights. You can adjust for the color temp of the tungsten lights in the camera software or in Photoshop. You will need a good tripod. I afraid I don't have a good one, and hence can't offer much beyond the general Bogen/Gitzo/etc. pro stuff recommendation. Sand bags can make a cheap tripod much more stable.
Another tip I would offer is that you get a monitor to look at your results on as you work. The teeny little LCDs on the backs of the cameras are worthless except for displaying histograms. The Nikon Capture software is very cool for this. You can connect the camera to a laptop and actually operate the camera from the laptop, seeing your results on the high res laptop screen right away. A video monitor connected to the video out of the camera would be a pretty good alternative.