I used Net2Phone 2-3 years ago when I was making a lot of calls to Europe. It was really cheap then @ $0.05/minute.
I got a Linksys router with built in phone support so I could use a normal phone--I'd played with PC microphone and headset before that, but they never worked well. It worked very well, and $700 phone bills became a once-off problem!
I'm sure there are many more and much better services available these days--I don't need it anymore, so I haven't updated my setup. Skype is in the news, may be worth a look:
http://www.skype.com/