Live sand is really a bit of a con, if you have live rock then it will colonise the sand soon enough and save a lot of money in the startup costs.
Live rock is a porous rock in which bacteria can live to complete the nitrogen cycle (ammonia --> nitrite --> nitrate --> nitrogen gas) and filter the tank.
It comes in 3 broad types:
1) Wild colelcted - collected from reefs, I believe it usually is the reef skeleton that has been damaged and is lying a little way from the actual reef, typically from Indonesia or the Pacific islands.
2) Large scale man-made - Live rock is porous, so is cement so in some places (typically Florida) they create huge lumps of concrete and drop them into the sea, then pull them up a few months later once they have been inhabited by the life we desire.
3) DIY - a number of people (myself and Aquascaper included) make our own liverock. I've priced mine up and it costs around 50p to £1.00 per kilo to make, compared to £10 - £15 per kilo in the stores. All it takes is cement and bulk. Some people put pasta shells or rock salt in the mix to aid in making the shapes porous, though salt will weaken any cement it is added to and most info I can find on the web says that cement is more than poroous on its own.
The cost of live rock varies depending on its source, but basically, in the above list, the lower the number, the more the cost.