Yes you can use the cheap inks and paper and get good results photo quality paper of some sort is recommended.
The local primary school produce hundreds of photos that way a year without a problem. Occasionaly get a bad cartridge but the company they deal with have always exchanged no problem cost about £8 - £10 a pair, black and colour.
Not too sure about colour loss over time the school are generally only interested for the year, but I havn't seen a problem over 4-5 years.
I have used a cheapy 128M flash card in my camera for some time with no problems.
Rickity