If you saw my work space, you'd crack up. I'm in what amounts to a rather small bedroom, with at least 500 articles of clothing all around me (4 full-size industrial garment racks of hanging items, and then some).
My photo backdrop is a custom-made, white window roller shade -- 6 feet wide, 12 feet long, so it goes behind and beneath my mannequins or model without a break (but that's just personal preference -- a starched white sheet would work, too). I have the roller-shade attached into the wall studs just below the ceiling. It rolls down in front of the closet (the only wall long enough to accommodate photography and not occupied by racks). When I need to get into that closet, I just roll up my backdrop.
I have no room for light stands, so I use the cheap, clip-on light fixtures from Home Depot, with compact fluorescent daylight bulbs (x6). They're clipped to the clothes racks, the shelving, my sewing table -- everywhere. I never use a flash.
Even so, I spend quite a bit of time on PhotoShop brightening, adjusting levels, and getting the color as accurate as possible. This is more a reflection of my not-so-great camera than my photo set-up. I am holding off buying a better camera for the time being. The bonus of being poor is that I'm getting pretty proficient at PhotoShop : ).
Just above the closet frame and about a foot below the roller shade mounting I recently mounted a regular old $4 curtain-rod. On that is a (too-narrow, but it was a freebie) black velvet curtain, and a 6-foot wide, 11-foot long mid-tone gray polyester photo backdrop that has a rod pocket at one end. It doesn't wrinkle like muslin, so I can keep it bunched up, off to the side, beneath the roller shade. It works fine.
Sure, I'd love to have a fancy studio with a proper set-up. But with a little creativity (and not a lot of money), you can take some decent photos:
