1) You need a webhost to host the domain. If you just buy a domain, you won't be able to do anything with it. You need a webhost to upload the content.

2) Webhosting is $3.95 per month on host monster right now. Most are in the range of $4-$7 per month. It's really not a lot of money. Think about how much it would cost to run a real store.

3) I wouldn't recommend you buying your own server. It's harder to manage your own server and it usually costs more because it's not shared.