Last week, Skype released a client for the iPhone, and the whole world — or at least 50 million iPhone users — can rejoice. With free calls to other Skype users, the new app (available free from the Apple app store or from Skype)is ground-breaking, because it means you can place Internet calls without having to use AT&T carrier service. And, iPod Touch users now have a reliable VoIP (voice over Internet protocol) tool that is a real game-changer. Essentially, Skype turns the iPod Touch into a cell phone, without any carrier service.

Does the client really work? I tested the service over the past week, and found that it is very reliable in specific conditions, for both local calls and international chats. Skype for iPhone does have a few hang-ups though, and not the kind you’d normally hope for from a phone.

Truth be told, all VoIP clients — such as Google Talk, Vonage, and Gizmo — require a fast Internet connection running at 3Mbps or more. Your home router also plays an important role. Newer models such as the D-Link DIR-855 and the ZyXEL 550-NH have Quality-of-Service (QoS) features, which smooth voice calls by giving them priority over simple data downloads.

Local calls between Skype users were crystal-clear during most tests, both over a home broadband connection and at a public library. In a few cases, Skype for iPhone would cause a strange delay where the other party had to wait for the audio — almost like it was held up in traffic. An international call had a similar problem which grew progressively worse. Anytime you call someone who does not use Skype, you’ll use Skype Credits you buy at — usually at just a few cents per minute. You also have to pay extra for voice mail and a private number in your own area code.

Still, Skype for iPhone has some cool extra features. If multiple people call you using the desktop version of Skype, you can add them to a conference call. Any call you make or receive is added to a history log, which you can view on your iPhone or the Web. You can also listen to voicemail on your phone or from your computer.

The most-publicized downside to the new client is that you can’t make a call over iPhone 3G service; it only works over Wi-Fi. If you’re connected via 3G, your Skype buddies can see that you’re online, but nothing more.

For free, Skype for iPhone is worth the download — just don’t expect miraculous service.