yep, go SPD. there are bunches of knock off pedals that use the spd cleat that are relatively cheap.

Buy a good pair of shoes that fit. Lots of deals out there for shoes, last year's models. A touring shoe, usually lace up, can give you double duty in that the cleats are typically recessed and will allow you to walk around without grinding the cleats on the floor or pavement.

In case you don't know, Cleats come with the pedals. Spd cleats will likely fit any touring/mountain bike shoe you look at so don't worry about compatibility. When you get them and put everything on for the first time, go to a soft grassy field to try it out. I promise you will end up falling down once or twice as you learn to clip out and stop. Better to do it there than on the pavement. Good Luck!