Yeah definitely hostels ... Kirsten and I went to Europe many moons ago (just about the same path you're going) and as long as you aren't picky about accomodations, things can be very cheap. By accomodations, I mean you may be doing the communal bathrooms and bunkbeds in some places -- it's an experience. But it really was interesting ... you meet a lot of people in similar situations, so that was kind of cool. We did the Eurail pass the whole time and basically stayed in hostels or slept on the train between cities/countries. One of those Let's Go Europe or whatever they're called will have an index of all of them ...