I decided to get a skype number as a replacement for my landline number. I found that no matter what skype setting I used on my mac laptop the phone number was always engaged (busy). It turns out that the problem is due to the fact that I also had skype installed on my windows box. It seems that if you are logged in on two different machines skype will always take the settings from windows over osx. Any changes you make on the osx side are overridden by whatever settings you have on the windows box. As soon as I changed the settings on the windows box everything started working.
Now all I need to do is figure out how to get the 2 hours of my life back that I wasted on working this out :)