Best to fly on one of the many Chinese budget airlines. Train travel not advised - very slow and uncomfortable. LG Australia
Took the train from Beijing to Xi'an -- 13 hour trip, hard seat cost 100RMB. Various sleeper carriages cost more, but I would suggest getting them. We bought tickets two days before departure and they were all out of sleepers.
"Hard seat" doesn't imply hard, really--but it's not a sleeper. Also, baggage is a huge issue on the train. Even a single backpacker pack per person is tough, since as soon as the train boards everyone rushes for his seat to claim the precious overhead baggage space.
My wife and I went to China a couple of years back. We took the train from Beijing to Xi'an and that was better than expected. We had to pay about 400 RMB per person if I'm not mistaken. 4 shared a 4 bed compartment with 2 Chinese ladies and the train ride took all night. What we found to be a problem was getting a taxi in Xi'an...it was quite chaotic and no one seemed to know any English. But eventually we found a taxi and got to our hotel and we went for a tour to see the terracotta warriors :-)
I have posted a trip report with more details and pictures on my personal homepage. But due to the forum guidelines I can't post the link here. But if you do a google search on my name gardkarlsen you should be able to find it :-)
Get in touch if you have any questions :-)