Really Simple Systems offers a pared-down CRM solution that excels on providing the fundamentals, though I'm not sure if it integrates with the phones.
You can find a bunch of free CRM solutions here that are all hosted. They all have the basics that any business might need.
There's a discussion going on in this thread about a few of the CRM systems mentioned in the free CRM solutions post.
Zoho (https://crm.zoho.com) is free up to 3 users. It's a pretty ugly tool, but it's popular at SMBs because it's so cheap.