Compact crankset on a budget...

http://www.sheldonbrown.com/gloss_bo-z.html

You may have to scroll down on that link, but bottom bracket is there.  I suggest you bookmark Sheldon's website anyway as it has lots of useful information.

Sure sounds easier.  You don't need Ultegra either.  Pick up 105 and save a few more $.  You may also want a new chain at the same time, since you may need a couple extra links over the one you have installed now.

Edit: http://www.sheldonbrown.com/gears/  This is another useful tool on Sheldon's site.  Allows you to play with different cassettte and chainring combos to see how it chnages the gearing you have available.  So you can compare what you have now versus a 12-27 or swapping the 53/39 chainrings for something like 50/34 with compacts.  Or any other combination as well.

Yes.  That's basically what a 'compact' crank is--a 110 BCD vs. a 130/135 BCD.

If you are looking at the new cassette, Nashbar has the 105 for $60 and the ultegra for $66 right now.  Jensonusa has a nice Miche brand cassette for $56 that would work nicely.   Also save some money for a new chain - you'll need a longer one now.   If you don't have one, you'll need a cassette lockring tool.   Borrow or buy one of those so you can remove the old cassette from your wheel.  A chain whip is handy, but you can use an old peice of chain if you don't want to buy one. 

Here's a decent guide on the procedure: http://www.utahmountainbiking.com/fix/cogsoff.htm

If you have a LOT of hills, you may still want to add the compact crank to your bike in the future, but the easier/cheaper solution for now is the cassette (like everyone said). 

A 130mm BCD crankset only goes down to a 38T as the smallest ring.  Not much benefit for climbing.  That is why the 110 BCD crankarms exist, so you can drop to a 34