I bought vonage for my Fiancé that lives in Lima, Peru. So she now has a local number in my area that we can use call each other, in addition, she can call her family in other states and her friend in PR with no additional costs. This is much easier than paying all of the international long distance I used to pay, and gives her a benefit as she rarely talked to her friends and family in the US and PR before now.
It seems to work well, but if there are internet problems, there is no phone.
Unlike electricity, cable, and internet service, the US phone system is near 100% uptime. If you think about how many times you have called for problems with internet, electricity, or cable and compare that with how many times you had to go to a neighbor's house and call because of problems with your phone service, and you should be able to realize the quality of service the real phone company gives us. Other than noise in the line, which doesn't actually prevent use, only once in my life have I ever had to have the phone company come out because a line was unusable. And we had 5 lines at the time.
My hope is that the internet phone service industry will keep growing, it will always have a market as it makes it very cheap to have local numbers in other states or countries. But, more important is the competition that has already started making the phone companies provide the same features, although at an inflated ($50 vs $25) price, with their more reliable service. And eventually those prices will come down if the competition continues.
One thing to do beforehand is check reviews (dslreports.com is a good site as well as vonage-forums) for the routers they offer to make sure you get one that will work well in your application. I had to deal with the fact Telefonica DSL(Peru's provider) provides a crappy non UPnP DSL modem/router with bad NAT capability and no port forwarding abilities. I had problems with my original VoIP router, but the linksys RTP300 was able to tunnel through any setup I tested. Before I sent it down to her, I put it behind 4 cascaded routers some of which worse than her's, even my PC couldn't connect to MSN messenger through this setup, but the RTP300 worked flawlessly.