A local band heard a demo CD I recorded of another band (that I did for a friend for a "token" fee to cover CD/label materials) and asked if I could record them live for a demo CD; and how much it would be. Since I do this as a "hobby" I don't know what is a reasonable rate / package amount to charge. Ideas please....thanks.

How much time did you spend on the first project?
 
Call a studio or two in the local area and ask them what their rates are.
 
Base your price on that information.
 
Even though it's a hobby for you, if you are planning to do this you need to charge the going rates and treat it like a business,,,,,,understand who owns what at the end. Do you end up giving them the master files or just a finished copy of a wave? That is up to you and should be spelled out in a contract. Be sure to keep the payment from them, ahead of the deliver of the project.
 
I've heard so many sad tales that started the same way yours does....."some friends want me to do a demo for their band"... and before the end of the project, usually about half way through,  the band is suddenly out of money, and wants to change the deal around, or decides to do something different.... asking for 3 finished tunes rather then the 6 they agreed on for the money they have paid already, because they are now out of money, or don't like the way you mix all of a sudden.....
 
I don't record anyone for money..... so that is my advice from my POV... get the advice from some others here who DO make this their business..... they will have more detailed advice for every step of the way. The goal is happy clients and happy you.
 

Some  good factors to think about as I go into this ! thanks

You probably don't want to charge them commercial rates, as you a) don't want to scare them off and b) want to do it for the experience. But seriously, don't underprice your services. 
 
They will value your effort more if you charge them a substantial fee. Basic consumer psychology: people routinely base perceived value on price, especially when buying something they've never purchased before. 
 
Try to quote them a finished package, including mixing, mastering, CD duplication and packaging. That way your fee is only part of the cost, and they may have an idea what the other parts cost and therefore know it's not cheap.
 
My formula is: take what you earn per hour in your day job and cut it in half. Multiply by how many hours you'll take to complete the job. Don't forget travel and setup time for the recording session. Figure on 2 hours per song for editing and mixing, even if you know you'll require more.
 
But don't quote an hourly rate, as that might box you into delivering a finished product you're not happy with. Give them one number and explain exactly what they're buying (e.g. re-tracking and overdubs are not included).

Also, keep in mind that whatever you charge will be what you charge forever.
Cause John will tell Paul, and Ringo will overhear and tell George and then if you charge anyone more, they won't like that.

I do trades. And my friends definitely value my time and effort.

These are all good and have me thinking it out more...interesting views of it. Trading maybe...Gotta find out what these band members might have to offer - maybe to accompany me on one of my own songs / home recording. The drummer does own a drum shop in a neighboring city that I have not seen yet..mmm even though I am not a drummer...

Ill do it for 5 dollars less. And that buys a cheap 6 pack, so I win.  

Ill do it for 5 dollars less. And that buys a cheap 6 pack, so I win.  

I do like the idea of the complete package as suggested.... 50% down, and the balance before or upon delivery of the package into their hands.  Let them hear snippits of the songs for approval and suggestions.
 
If you like doing this and word gets around, keep the price affordable (the same) until there is too much work coming in. Then start choosing the work you want and raise your price.  Reputation is key, and people will pay a premium to someone with a reputation for quality work.