For absolute top quality you should use the manufacturer's inks, together with their recommended paper. However, switching to 'compatible'/'recycled' cartridges (but still using good quality paper) normally only results in a very minor drop in quality.
However, switching from a decent brand of photo-paper (e.g. Kodak Ultima) to a 'value' brand (e.g. Morrison's Photo Quality Inkjet Paper) will produce a massive drop in quality.
Buy cheap inks from a source which someone has personally recommended to you (because they do vary quite a bit in quality). I like this firm's products:
http://www.inkcycle.co.uk/
(If you're buying on the High Street, Morrison's inks are cheaper than most others, and of quite good quality).
However, don't over-economise on the quality of the paper you use. Something like Kodak Ultima will produce excellent results, even with 'compatible' inks. The results with Kodak Everyday Photo Paper will be noticeably poorer but still well within acceptable limits. However, the best thing to do with stuff like Morrison's Photo Quality Inkjet Paper (since it's too shiny to wipe your @rse with it) is to throw it straight into the bin, because that's exactly what you'll want to do with the prints it produces.
Save on ink by all means but never on paper. (Except of course, that it's a good idea to watch out for genuine bargains. Sainsbury's often have Kodak papers on a 2-for-1 offer during their sale periods).
Chris