Blue Icicle isn't a mic. It's an XLR to USB converter. Russell is entirely correct about needing a mixer and decent mics to do this. So get two decent mics and the ability to mix. You can mix in hardware or software. Doesn't matter. I won't go into detail on that. Ask around here, you'll get tons of good advice on affordable kit. I'll talk about the recording process here, and assume you know how to use your kit.
You should be able to record at least two tracks at the same time. Whether that is Reaper or Audiacity or a hardware workstation is irrelevant (although you can do more with Reaper). The DP-25 Russ recommends is awesome (and I'm getting one) but you can spend a lot less and get a quality USB interface from a variety of vendors for a lot less money and just record directly to your computer. Look at the Tascam US-800, for example.
Anyway, here are your recording steps.
Step 0. WRT the space, unless you have access to an acoustically treated room, do as much as you can to deaden the room you are in. Make a single strike on the snare and listen for flutter echoes. Do everything you can to eliminate them. Stuff big fluffy furniture in the corners to help reduce standing waves. If you are in your house and have a selection of rooms, pick the biggest one that isn't square. Square is evil. The room you record in will have a larger effect on the finished product than any other aspect of the process. Get to know it. Get to know how to treat it. Get to know what different rooms do to sound. It's the best thing you can do to improve your recordings.
Step 1. Record a scratch track. This is what you've already done. A single mic recording everyone at once. It will probably sound like crap, and that's OK. So long as you can play along with it, that is all that matters.
Step 2. Put the drummer on a pair of headphones, play the scratch track through the headphones, and have your drummer play along. Record the drums as he plays. You can do this with two mics for a good balance between quality and easy set up. I like the "Recorderman method" as it eliminates phase problems that can happen with overhead techniques, and it is also easy to set up in a small space. There are a ton of other one, two, three, and multiple mic techniques out there, though. Pick one that works for you, *learn it,* and then use it.
Step 3. Plug the bass directly into the recorder. This is called Direct In, or just "DI" for short. Put the bass player on the headphones and play the scratch track back for him. Have him play along and record that. This can be done simultaneously with the drums if you can record that many simultaneous tracks. If the bass player has a specific sound that he likes out of his amp, don't sweat it. We can come back and record that later using the track he just laid down.
Step 4. Mic up your guitar amp. Put the scratch track on the guitar player's head, and have him play along with the scratch track. Record that. Repeat as necessary for all guitars.
Step 5. Record the vocals. At this point, you shouldn't nee the scratch track as you have a full accompaniment of instruments.
Step 6, if your bass player has an amp tone he likes: Take the bass track he recorded, and run it directly to the bass amp. Mic up the bass amp. Play the bass track through the amp, then record the amp. Use that track in your mix.
Step 7. Mix that thing down.
This kind of layered recording is time consuming, as you'll play each song at least three times, and probably more, but it gives you great sounds (no bleed, no phasing, etc...) and allows you to mix down into stereo easily.
Someday we'll win this thing...
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Go to a shop you trust and let them know what your trying to do. tell them your on a budget, If they are a good shop. they will talk to you for a bit about your needs, and give you basic instructions to get them most of your investment. OR option 2, Is there a University/Coll/ good highschool around you with a music program? Run an add for a sound guy wanted for light recording project. Find out how much he would charge you to come in and show you the best way to hook everything up, and do some engineering + show you guys how to run the stuff.