This has been bothering me for a while now. I've been trying to create something, using Anvil Studio (perhaps I shouldn't be using it) that doesn't sound mechanical. Specifically, I'm trying to get the violin, piano, and guitar to sound - well, like the violin, piano, and guitar. They don't. Funny thing: I can actually play piano. The guitar isn't quite my instrument, but I can, when pressed, do a plausible imitation. With midi, not so much.
Good quality VSTi's (VST Instruments) will get you about as close as you can get without actually playing the real thing. I have not used Anvil Studio, but from looking at their website it is compatible with VST Instruments, so you could continue using that if you like.
There are a lot of VST instruments available and Bedroom Producers Blog has compiled a list of freebies under the section "Part 3: Best Freeware VST Instruments", so here is a good place to start: http://bedroomproducersblog.com/free-vst-plugins/
If you're willing to spend some money, then check out the company Native Instruments, they have a lot of high quality instruments to choose from. Here is a demo song I found on youtube showing their strummed acoustic guitar plugin:
the sound quality you get depends on the sound quality of your synthesizer that turns the midi notes into audio. Better samples used by the synthesizer means better audio.
for the piano, recording by midi should get you almost perfectly there. providing you can play piano decently. for the violin and guitar, not so much.
too many acoustic intricacies will keep the violin and guitar from sounding any better than a synthesizer keyboard. subtractive synthesis just can't do the string bending and dynamic timbre of an acoustic instrument very well.
The piano samples of a synthesizer usually have many many overlapping "multi-samples" to give you SOME dynamic-ISH timbre for piano. The guitar and violin samples are usually not as multi-sampled so less dynamic timbre wise.
You can use a program such as Synthfont to alter your soundfonts, giving the MIDI output a different sound (usually a much better one).