If you don't have a spare PC laying around, VMWare is a pretty spectacular way to get your hands dirty without having to worry about completely hosing your development machine on accident. The only thing you really can't do with VMWare is hardware level drivers, for obvious reasons.

If you really want to get gritty on the emulation level, I highly recommend Bochs. It's a fully functional x86 emulator, and since it's open source, it comes with some nifty options, and the source code is on hand if you really need to get tricky.

I think the key to working efficiently with an x86 emulator/virtualizer is having a significant amount of RAM, and a RAM disk to mount your virtual drives on. Since RAM is so cheap these days, there's no excuse not to have at least a gig of it in a development box. It makes rebooting the virtual machine (which happens a lot) a bearable process.

If you need to work with hardware, you can build yourself a test platform for around $300 now, including a cheap monitor - unless you need exotic hardware.

My experience kernel hacking is in on the VFS level, inserting and modifying a few core routines to report through a /proc interface ... and it was pretty easy to get into. I started with a basic understanding of how things work (inodes, etc.), and it came pretty easily. If you're going to be working on file systems, make periodic copies (backups) of your virtual drive image (if you're using VMWare/Bochs) ... it's a life saver for the first few weeks. :)

The kernel is complex, but so is any major piece of software. Thankfully, lots of bits in the kernel are well engineered and compartmentalized, so chances are you won't have to worry about screwing up the TCP stack if you're in the midst of inode.c ...

have fun!