I've heard with some version of PSP, you can simultaneously use it as a PSP and a phone... free of charge. How do you go along doing this?

Urban legend. What you are hearing is a twist on the rumored PSP Phone. Well, not so much a rumor as it is still in development.

Here is an image of a patent filed:
http://www.unwiredview.com/wp-content/uploads/2007/06/sony-ericsson-psp-phone.jpg

Now, this doesn't mean it will happen.. just that they are trying and wanted to make sure no one copies it. Also, bare in mind that this was filed in 07. Lol

My guess is, don't hold your breath.

Now, in once case, some hackers took a touch screen cell phone and mounted it in the back of a psp.. you could makes calls on it but the drive was destroyed in the process. Lol

If you want you can already make calls with the psp... you just need to be near wi-fi. You can download skype onto the psp and use it like a phone. They sell accessories for headsets and a mic to use with it.

Doesn't that only work only if both users have skype? (just curious... I really have ignored the whole skype thing lol)

With skype you can call other people with skype, be it on a PC or psp, for free. If you pay a small fee to skype you can call phones and cell phones also.

Cool.. thanks for the info

As of 3.90 you get skype with the Firmware. I don't know exactly but the PSP 3000 series has a built in mic and might also support Skype that way.