Since the Nintendo DS has a built-in microphone and a wireless Internet connection, what's to stop it from being used as a WiFi phone, or the DSphone, if you will?

I've scoured the 'net and found some projects currently underway that claim to do just that, albeit with limitations.

VoiceChatClient is a homebrew application that lets you freely call anyone who also has VoiceChatClient installed on their DS. This hack even adds extra value by transmitting what you write on the touch screen to the other person! VCC requires hacked firmware or some type of passthrough device. (source)

DSpeak has been developed by Nintendo themselves, but aside from a demo at E3 in 2005, nothing more has been heard about this program. DSpeak will reportedly allow in-game and out-of-game chat. And when you speak, an on-screen Mario or Wario avatar lip syncs along! (source)

HelloDS was released some time ago as a proof-of-concept hack, along with a promise of a future version of this homebrew software. Unfortunately, the update has not been forthcoming. The initial version is still available and requires the firmware hack or passthrough. (source)

Metroid Prime: Hunters is currently the most easily accessible option for chatting with your DS buddies. All it requires is the Metroid Prime: Hunters game and a WiFi connection. You might want the NDS VoIP headset too. For this VoIP solution, you just meet the person you want to speak with in the same pre-game lobby and talk. It also works post-game, but not during. (source)

Conclusion: Though this handheld gaming device is certainly capable of competing with other mobile WiFi phones, the current state of Nintendo DS VoIP affairs isn't very exciting. None of the above solutions include support for SIP or for dialing out. However, the demand seems to be out there, so the DS might get to see a true VoIP app yet.