What are the real reasons an SM58 should be used for vocals, and an SM57 should be used for instruments?

It is true the SM57 and SM58 microphones are based on the same cartridge design. The main difference between them is in the grille design. The SM58 was designed for vocal application and it uses a separate grille with a very effective pop filter. The SM57 was designed as an instrument microphone where smaller grille size is preferred. In this application the pop and wind are not usually a concern. The SM57 uses an integral resonator/grille assembly, where the grille is actually a part of the cartridge. These two grille designs place the diaphragm of the microphones in a different acoustical environment. First of all, the distance from the top of the grille to the diaphragm is significantly shorter on the SM57 compared to that of the SM58. This allows for closer sound pickup with even more pronounced proximity effect. Second, a different resonator/grille assembly design of the SM57 is responsible for its slightly higher output above 5 kHz.

I just bought an SM58. I want to use the mic for both recording my acoustic guitar and vocals The SM58 must be virtually touching my lips for vocal recording, and it can't really pick up the guitar very well at all. I'm also recording into my computer, and whilst the input levels are at maximum, the recording level is still very low. My basic question is, should I expect to be able to get good amplification at anything other than 1 cm away? Even with the mic plugged straight into the amp the sound is very quiet compared to plugging my guitar directly in.

What you are experiencing is the difference in level between different devices. Low impedance microphones, like the SM58 have a very low output level. A guitar, on the other hand, has a much hotter output. The sound card on your computer requires a hotter level. Using a transformer can help boost the level of your SM58 to something that would likely be appropriate for the sound card. The Shure A96UF is the correct transformer. It has a female XLR on one end and an 1/8" connector on the other end. Place the transformer at the computer and use a standard XLR cable between it and your SM58. This should solve your problem.

If the sound card requires more level than the A96UF transformer can supply, you will need to add a microphone preamplifer. We recommend the Audio Buddy from Midiman.