Gimp is great freeware that is cross compatible. Though it takes some time to learn. I would also recommend paint.NET as it is not quite as flash, but lacks some features Gimp has.
As i am currently a student providing proof would not be an issue, but it is nice to know that there are less expensive versions of a $700 - $1,200 program out there, especially since this is more of a hobby.This was to be my addition to this discussion - academic versions are available - you need to be able to provide items of proof of your eligibility.
Some vendors aren't as strict as perhaps they should be about this requirement.
As far as I am aware (having had various academic editions of different software as a teacher and university lecturer) there is no difference in capabilities in from the commercially licenced versions.
Another option is Photoshop Elements - has lots of the functionality of the full version without some of the more design/photographer professional-oriented features.
GIMP is an excellent freeware package with many of the features of Photoshop.
Ive had some minor experience with laying down tracks doing audio editing/creation and from what i have messed with so far in GIMP having the layers is very nice. Something i have not been able to figure out yet that is hindering my creative ability is separating the foreground of an image from the background. There are some graphics and logos i would like to overlay some existing patterning but cannot.As Zuluclayman recommends, Adobe Elements is probably the best option if your budget doesn't permit the full version of Photoshop CS5 academic licence.
You will find it relatively easy to create what you want in either of those... or indeed any photo/imaging software that supports 'layers'
Don't be frightened or put off by the idea of 'layers' it is a technique that is easy to learn.