1. How best should I do this and what do I need?
I would start by choosing an album that allows refillable pages, then select some holiday papers and a few embellishments.
2. How much would you guess this will cost me?
It depends on what you are willing to spend. Elaborate scrapbooks can cost a lot of $$$, but I've put together simple ones for under $50, which includes the album and supplies.
3. How do I integrate pictures and text.
You can use an acid-free pen and handwrite the text. A lot of people shy away from this, but it's really a great way to add some warmth in the albums that you are passing down. Otherwise, use something like Word, and create a document with your journaling, and print right onto the paper. Any font you like will do, and Word already has a lot to chose from.
4. From people who know what they're doing, what other thoughts or advice do you have for how best to do this? I'm envisioning something that I could have or maintain for many years or possibly generations, so I'd like to do it nicely.
I would suggest going through the galleries here, or looking through some magazines at a craft store. I always find lots of ideas to copy from the magazines. I would also suggest going through the Superstore here at scrapbook.com to search for albums and Christmas papers and embellishments. A basic scrapbooking class at a local store or in the classes section of scrapbook.com will be very helpful to get you started on basics.
Good luck and have lots of fun!