- CoronaSDK - the development kit we will be using to make our game. You can download and use it for free. You don't have to pay until you're ready to publish to App Store.
- TextMate - Lua files are just plain text, so you need an editor to work with them. TextMate is what I use because it has a great auto-complete feature, but it's not free
- TextWrangler - a great, free alternative to TextMate
Adobe Illustrator and Photoshop are pretty standard, but they are very expensive. A great, free alternative is Inkscape. It has all the features you'll need (and it's free!).
Speaking of Inkscape, 2D Game Art for Programmers is a GREAT blog for learning how to make video game art. He even uses Inkscape in all of his tutorials. Here is a link to the first introduction article.
This and this are my favorite tools for designing games. You may find other tools you like.
Between Garage Band and Audacity, you can pretty much do anything you need to.