As you mentioned sorting and storing LEGO does become an issue as you start to amass a massive collection. There are however great solutions worked out already by LEGO fans. The earlier you set up a storage system that works for you, the better, and the easier it is going to be to manage your projects, and also stay enthusiastic in the hobby. Here are a couple of articles I wrote in regards to the topic, laying out what LEGO fans use and ways to get you started:
How to sort LEGO: http://thebrickblogger.com/2010/12/how-to-sort-lego/
How to store LEGO: http://thebrickblogger.com/2010/12/how-to-store-lego/
In addition, I have been maintaining a couple of Flickr Galleries where people show off their LEGO storing and sorting solutions. Seeing how other people sort and organize their LEGO can be very helpful, especially as your collection grows.
LEGO Display & Storage Ideas Gallery 2: http://www.flickr.com/photos/akunthita/galleries/72157629813455752/
LEGO Display & Storage Ideas Gallery 1:
You don't have to spend that much to set up a good system. What it requires though is to think through what you want and also what kind of space you have. The above information should get you started with ideas and solutions, and you should be able to get yourself organized easily.