Here is the scenario. I need to manage a list of people, their contact
info, and track their donations. Some have mailing addresses, some
have e-mail addresses, some have both. We'd like to manage this list
in an easy way, i.e. not in a giant Word document. We'd like to easily
be able to print mailing labels for snail-mail newsletters for those
with mailing addresses. We'd like to easily send out newsletter
e-mails to everyone who has an e-mail address.

We also need to track who has donated, and what amount, so that we can
send them an end-of-year statement.

What is the best, least expensive way to do this?

Open source is a bug plus.