Could someone who has experience in this area tell me what offers better sound quality? I was also hoping someone could tell me what popular software is used that contains a lot of different sounds, e.g. drums, harps, organs, steel string guitar, electric guitar etc.
I've never used hardware sound modules (the notion seems rather quaint to me), and I'm not a huge stickler for sound quality in the first place, so I can't answer the first part of your question. Except to say this -- film score producers do use digital instruments rather frequently. Sometimes these end up in the final soundtrack, and sometimes its only in the scoring process, to be recorded live later. But non-live scores are becoming increasingly frequent.
When it comes to digital sound, I'd say the biggest potential pitfall isn't low quality, but avoiding latency. You don't want the sound to wait 100 ms after pressing a key, or it will throw you completely off. You have an external audio interface, so that should already give you a huge benefit over someone using a built-in soundcard, but it's still something you may fight with from time to time.
Regarding digital options, there are very, very many options out there, although your options will be different depending on whether you use Mac or PC. For PC's (which is what I have) most DAWs will load a type of plugin called a VST (Virtual Studio Technology). These can include all sorts of audio effects (reverbs, EQs, virtual amps, etc...), but the kind that acts like a synth, converting MIDI into audio, is called a VSTi (for VST instrument). Many companies will have their own proprietary synth format as well, but VSTi is a widely-recognized format that many people provide and support. Again, these are PC-specific. Mac has its own technology, but I don't know anything about it.
To start out with, there are hundreds (if not thousands) of free VSTi's out there, and there are several sites that collect massive lists of them. Google can get you pointed in the right direction. Some VSTi's work as complete synthesizers, with programmable parameters like attack, sustain, and release. Others act as samplers, and can read sample files, either proprietary or open-format (the later include soundfonts (*.sf2) and SFZ files). Sound quality can vary a lot between these, and sometimes the best thing to do is download as many as you can find, and then "audition" them all.
As a side note, I'll caution that not all the free instruments (especially samples) that are floating around out there are, strictly-speaking, legal. People have redistributed samples of commercial sound modules or proprietary digital instruments. Unfortunately, there's really no easy way to distinguish the legal ones from the copyright infringements. However, I'd expect the VSTi's that perform their own synthesis (instead of using samples) to be OK.
At any rate, you can do quite a lot with what's available for free. In fact, I've personally never bothered to buy a professional digital instrument because the free ones have always been good enough for my purposes. But once you're ready to move beyond the free options, there are a number of commercial options available as well. As with sound modules, these can start to get rather pricey, depending on what you're getting.
Pianoteq is the de facto digital piano instrument out there. It physically models the workings of a piano, and lets you adjust all sorts of parameters to design your own piano sound. I don't think you'll find organs, guitars, drums, and harps in here, though.
For orchestral sounds, Garritan Personal Orchestra (GPO) gets mentioned as a relatively affordable option. I'm considering the possibility of upgrading to this. They also have other sample libraries available.
There's also East West Symphonic Quantum Leap (EWQL) which has its own line of products, including a highly-recommended symphonic library.
Another name I see a lot is Native Instrument's Kontakt.
There are lots of others out there, these are just the ones that came to my mind first. You can also ask at your music store what software instruments they would recommend. Most of these company's websites should have examples of their sounds available on the website, so you can hear what you're getting before hand. Note that these are likely to be created with carefully-crafted MIDI files, with post-processing effects added as well. As such, they show what the instrument is capable of, but may not represent exactly what you hear in a live performance, without additional work.