I have my boys (5 & 7) sort and file their own artwork and school papers. I got each of them a plastic file box, labeled hanging folders CURRENT, K, 1, and 2 for the grade he did the papers. If they can't decide if they want to keep it or not, it goes in the CURRENT folder. If they want to keep it, it goes in the grade folder. If they want to toss it, it goes in the recycling right away. (If I want to keep it, it goes in the grade folder. LOL) They like to do it, it keeps it organized, and they learn how to file things and organize for themselves.
For the items that are to be displayed, there are magnetic strips you can put on the(ir) walls to hold them up without damaging their art or the walls. I got mine at Office Max. It works well and lets them "decorate" their room and they decide when it goes in the trash or the file. For a cheaper solution, you can get some clothesline and clothespins to hang them on the wall.
One more place you can create the books is at snapfish.com. I don't know if they are cheaper than the other place that was recommended, but thought I'd let you know so you can shop around. I have a few of those "keep forever" pieces, but not enough to make a book just yet. :) Another thing is that you can make magnets, mousepads, etc. from them at the same places that do the books. I have a magnet of one of my son's creations, and I need to make another one...it's better than most of the abstract art I've seen in museums. :)
As to the computer in the humid basement, that's not such a good thing. Water and electricity are not a good combination. Definitely get a dehumidifier and empty it often. If it still smells musty, there are charcoal odor eaters...I got some at Home Depot in the paint department.