We have a couple of spare Mac Mini's set up in our house, each with a Logitech 1080p webcam that produces a nice 16x9 widescreen picture.
For the actual software, we created special Skype accounts for both machines and configured it a) to answer only people on our contact list for that account and b) to start video automatically when answered. This way we (and our family back home who are on the contact list) can login simply via Skype and get a look at the kids. With a speaker and microphone we can also talk to them and hear their replies. We've used Skype for the iPhone from many places to pop in and watch the kids. We also set Skype to make a very loud "alert" so that we know when someone is watching. Skype is set to boot up every time the machine restarts.
Works great for us. I bought my mother-in-law an iPad (a computer is too much for her) and she probably watches for an hour or two each day. It has greatly improved her mood and she now talks to us about specifics in the kids life, like "who is the boy in the red shirt who was playing with him today" and "make sure he eats all his vegetables". She feels much more a part of our day-to-day life, even though she is back in the USA.