First, shirts. Not just any ol' shirt will do for hiking all day with a backpack on. You need something breathable, that will wick moisture away from your skin and dry quickly, thus keeping you dry. That will help keep you more comfortable, but it will also keep you from getting chilled if the temperature drops suddenly. Target's C9 brand makes a fantastic 100% polyester breathable shirt in both short sleeves and long sleeves. I have a collection that I've used for both running and hiking for years. They're still available at Target for about $10. You would easily pay two-four times that much at other stores, especially if you opted for Merino wool.
Also at Target, I picked up a synthetic down jacket on clearance. Most down jackets will cost $200 or more, but I found this one for about $40. It looks bulky, and it is, but it compresses down nicely into about a 4x12 stuff sack.
At Old Navy several years ago, we bought a couple of anoraks for about $10 apiece. Little did I know then that it would be one of the best pieces of hiking gear I own. It works great as a shell, serving both as a windbreaker or as a short-term rain coat. It's only water resistant (vs water proof), but it works fine for a short rain shower. Unfortunately, Old Navy doesn't still sell them, but I've seen them occasionally in other stores.
Finally, in the clothes category, I stumbled upon People Socks from Amazon. They're nice, thick Merino wool socks that cost about a third the price of "hiking socks", and they're every bit as durable. Amazon sells them for $24 for four pair.
In terms of gear, I wrote a couple of weeks ago about my awesome backpacking tent find from Academy -- a great two-person tent for only $70. Two of my other great finds also came from Academy: A Thermarest Trail Scout air mattress for $50 and a Magellan Outdoors Camp Pillow for $3.
Finally, Wal-Mart sells a great hydration pack/bladder for a price you can't beat. The Outdoor Products Hydration Backpack comes with the bladder for $30 and is a decent size for a day pack. The 2-liter bladder can also be purchased separately for $10. My only complaint is that the bite valves tend to wear out quickly, but they can also be replaced easily for about $2-3 for a two-pack.
Many times you need to spend good money to get good gear, but not always. If you keep your eye open, you just might find a good product in a place you weren't expecting. That's how I found every one of the products I mentioned above. And most of them are still available, so if you're looking for some good quality gear at a value that can't be surpassed, give these products a try!
