I have the Magic Jack, and I do like it. You can't beat $20 a year for a phone, and since I work from home I can make calls from here rather than use up cell minutes. I have fiber optic internet (Verizon FiOS) and the Magic Jack is getting better than it used to be by a long shot. Still, sometimes others say that it sounds static-ey to them, and they ask if I'm on a cell phone. So they do need to improve the quality on outgoing sound. I have a decent microphone, but I guess if I try to get a nicer one it may sound better. I use a USB mic and my PC speakers and it's all hands free. You have to plug in a land line to recognize it, but you can set it up to come through your PC like I did pretty easily.
And yes, you do have to have an internet connection with this, cable or DSL will work. The nice thing is that the owner of M-Jack owns his own telecommunications company, so he doesn't buy the signal/airwaves from someone else. This sure beats Vonage with their "only $24.99 a month"!
Overall, I do like it and I'm sure the outgoing will improve, the sound quality on this end is awesome.