I think it's a baaaaad idea. Weddings are a once in a lifetime event, do you really think you have the skill and experience to photograph it without making mistakes, making people look their best, capturing all the details? Your first wedding will go in a complete blur, it'll be over before you know it and you will miss things. Also i'm on the verge of saying "no more family weddings" as familiarity breeds contempt, they won't give you the time or respect they give a professional.
If you do decide to go through with it have a read of the wedding FAQ I wrote, it's linked from my sig below. You'll get a ton of bad and useless advice here in the gear forum.
Incidentally your budget is waaaay too low, and you may be better off spending the money on books and educational material rather than more equipment. Then again if you only have a kit lens maybe you need something decent. Consider renting the 17-55 F2.8 IS and a flash so you can afford books. I have a book recommendation thread in my sig too.
Re Suzy shooting indoor at night without a flash - I stopped doing that because even with the best lenses the results are generally average to poor. I use a lot of off camera flash for this, and I sometimes set up strobes to light the room, with radio triggers to activate them.
Re get some kind of diffuser - I don't use them, unless you count umbrellas with the off camera flash. Bouncing your flash is far more effective, and outside I use direct flash as the sun is usually really bright. Sometimes I use a shoot through umbrella off the camera.