I think you are serious about your photography, so I would start from scratch and do it properly. You can do a heck of a lot with £200 these days
Flash is better because you get plenty of power to drive nice big softboxes and brollies, at high f/numbers and low ISO if necessary, plus the very short duration of the flash pretty much eliminates camera shake and any subject movement. And there's no heat. And you can turn the power up and down. Big, soft light is the key to good modern portraiture IMHO.
Studio flash has built in modelling lights so you can see exactly what's happening. You can also view everything instantly on the LCD of course, and with digital you can even use the LCD plus the histogram to set the exposure, without a flash meter, though I have to admit if you have two or three lights it is much quicker to balance them all up and set ratios with a flash meter. But hey, you're on a budget here and you'll learn a lot doing it the hard way

Actually I don't use a flash meter for simple set ups as I know pretty much what it will be and for final setting the histogram is more accurate than a flash meter anyway.
I'm not best placed to advice you on a £200 studio flash outfit, but there's plenty of good advice on here. As I said above, if getting decent power from two 200-300ws heads in a kit blows your budget, you can do an awful lot with just one and a reflector, plus I think you have a hot shoe gun you can add for a second effect light or background light - you should be able to sync that up with an optical slave for £5 off ebay.
Then get a second head when funds allow. If it helps at all, I have a spare Bowens 200ws head that I am going to offer free to a good home in the For Sale section when I get around to it. It's over 10 years old, only does full/half power, and has no built in slave (separate socket) but it works fine and has illuminated my kids growing up pretty well. I'm keeping the stand though
Garry Edwards knows his stuff and although he's attached to Lencarta in some way, he'll give good advice. Also check out the thread from Flash In The Pan in the For Sale section - he is supplying and selling a lot of good stuff, mainly accessories, brollies and things.