Believe it or not, it's a piece of cake, just think about it.... iPod Touch can be used as a phone.

Since it sports Wifi, just install a VoIP (Voice over IP) (have you already jailbroken it?), and you're done! Well don't you feel you're still missing... blimey the microphone!
A little modification (touchmods mic) on the iPod connector, add the mike et voila! Here you can find all you need to turn your iPod touch into an iPhone.