a little ludwig goes a long way: Going all voip at home. John has a great list of SIP and other products. The open source PBX is cool.
In terms of cheap the existing analog phone sets, that is what these media gateways do. They normally have 2-4 analog ports that convert into SIP on the backside. So you can gang these things up. That's what the discussion about the open source PBX is all about. You really want these things to ring simultaneously for instance rather than each being an actual phone with an actual phone number (the living is 206-656-1112 and the family room is a different number would be very strange).
So there are these boxes that are IP PBX es that are ideal, but they are priced for enterprises in the thousands. I can't find a $100 box that has an open source PBX in it. That is the dream device. So for instance with "Digium":http://digium.com, the guys who created the Asterisk, here is what you'd need: * A standard PC. Obviously, you'd want one that is super quiet and simple. A headless Linux machine for instance as they build in "SilentPCReview.com":http://silentpcreview.com * "Digium TDM40B":http://store.yahoo.com/asteriskpbx/witd4pofxsbu.html. This connects four analog phones up. You buy as many of these PCI cards as you need for$305 a crack or other compatible "Hardware":http://www.asterisk.org/index.php?menu=hardware.
* "Asterisk":http://asterisk.org. This is an open source Linux softPBX.
This actually doesn't work for our house since we have these Panasonic proprietary phones with an old key system. So, I just need a gateway from SIP plus a few phone analog phone connections. In that case, I actually do want each analog phone connection to be a separate Vonage phone line.
In terms of cheap SIP handsets, I have not seen really cheap yet, but they are coming as I understand it.