I just got back from London/Amsterdam having used the Telestial Passport Plus, which appeared to work fine. Calls to the phone from the U.S. are free via an 800 number, but it costs US$.30 to receive them...still not an outrageous sum, I didn't think.
The beauty of it is that you get a UK number and your minutes don't expire for a year, as opposed to the 90 day expiration from most SIM companies.
You can auto-top-up or top up online OR simply dial 154 from your phone. Their customer service was awesome. I'd recommend 'em.
For folks asking what phone to buy: the term you want is "unlocked gsm phone." "Quad-band" is also a good search term (this means your phone will work in more countries, basically.) Two phones that will work: Treo 650; Motorola Razr V3, the basic flavor of which is available for around $150. Not bad, considering they were $500 a few years ago.
Many cell stores will unlock your phone free if you buy a SIM card from them (a "locked" phone is a phone you buy from Cingular, Sprint or the like, that works only on their network.) Be aware that Verizon-branded phones do not use SIM cards, so you'll need a new phone if you're trying to unlock one you bought there.
Hope any of this helps. Dive