I would recommend Koolaid. It's cheap for a first timer (to see if you really like the process - which I'm sure you will), smells great, and is lots of fun to watch!
How much yarn you want to deal with at once partly depends on what you want to knit with it. I dyed about 300 yards in a really large corningware dish in the microwave. It worked fine. Others could probably give you more well-tested advice about "to divide or not to divide."