I suspect that the no local numbers thing was a radio shack mistake (they shouldn't have been selling them in that area or at least made it know that there were no local numbers). Magic jack is only in certain areas.
I have used both (skype for a year+ as they gave me some free time) and I am almost through a year on magic jack). Skype never had great call quality for me, but towards the end it got really bad. Magic jack has had its own but different problems. Call quality is almost always very good. It sometimes gets a little doggy, buy if you call the person right back, the problem consistently will go away. It doesn't happen often, but I have found occasionally, it will not let me dial a particular number (it has happened with different numbers and areas). You can try calling again, and again, and it will just hangup the call (never connect). It seems to last a matter of hours, and then you can get through to that number. During that time, you can get through to other numbers just fine. I also noticed, sometimes it connects, but only one side can hear (you can hear them but they cannot hear you or vica versa). I also found, if you get a dial tone, then hang up the phone, and then get a dial tone again (just hold the hangup for a few seconds), it never does that. I suppose that could be a bug with my particular hardware version.
If I had to choose, I would take magic jack hands down. Its got its bugs, but most of the time it works fine and call quality has almost always been very good (if call quality is bad, call back and its good). I would not use it as your only phone as sometimes you cannot get through, but its still worth having. We use it as our only land line but have a cel as backup. I do plan on renewing soon when my year runs out as for 20$ a year, its a steal.
Just a note on both. Reading reviews heavily (in the past when I looked at them), it seems to vary from area to area. Some get good service from either, some don't. Magic jack seems to get a lot better reviews all around though. A few other bugs I should mention on magic jack. It has quit working twice (in 1 year). Tech support is very good and got it fixed fast both times (quite acceptable to me). I had one computer that it would not install on at all (their tech support could not get it to work either). Luckily I have multiple computers and it has worked fine on two others. If you can get it locally at radio shack and therefor return easy, its certainly worth a try.