We just recorded an album in house and it came out great. We recorded everything at once. If you are going track by track this may not help too much but it's bluegrass and sounds more real when everybody is playing at once and feeding off of each other.
I spent some time dampening sound with studio foam and that really helped.
As for mics, I used large diaphragm condensers for the vocals and 3 akg 1000c mics for the guitar, mandolin and fiddle. The akgs are great! Good price and not too much bleed with the other instruments.
For my bass, I used my DPA 4099b. Not really a recording mic but I move around a lot when I play so it helped keep the sound of my bass uniform. I also use either a shure beta 52 and an akg d112 for the bass. I put a sound barrier in between myself the rest of the guys to get less bleed into the DPA.
Overall, we are very happy with the recording and for a fraction of the cost. And I get to keep all the mics