Microphones aren't that expensive though - maybe a couple hundred for a semi-decent one and a reasonable sound card? Lots of people would spend that on a guitar

Microphones aren't that expensive though - maybe a couple hundred for a semi-decent one and a reasonable sound card? Lots of people would spend that on a guitar. The latency might be an issue live, but there's no reason that the musicians couldn't (eg.) Lay down drum tracks, bass tracks, etc. and mix them up afterwards.