Firstly either Laconica or JaikuEngine would make an excellent choice. They're both open source and they're both built by teams who believe in the idea of lots of small microblogs that can talk to each other rather than everybody using one massive microblogging platform.
Laconica is further ahead in terms of federation at the moment and has an active development community.
JaikuEngine also has an active development community but has only recently been open-sourced.
However the code runs on Google AppEngine. This means setting up your own instance takes less than 5 minutes. You don't need your own hosting. You don't have to pay any money for hosting unless you get enough traffic that you go over AppEngine's free quota: http://code.google.com/appengine/docs/quotas.html
As Evan's pointed out JaikuEngine doesn't currently support OMB but we are planning to do it. See this document for our plan: http://code.google.com/p/jaikuengine/source/browse/trunk/doc...
Jaiku.com currently does have support for XMPP but JaikuEngine doesn't. That code will be open sourced when AppEngine publicly launches it's XMPP API: http://code.google.com/appengine/docs/roadmap.html
JaikuEngine's project page is here: http://code.google.com/p/jaikuengine/
We have a mailing list: http://groups.google.com/group/jaikuengine-discuss but most of the activity takes place on the Jaiku channel here: http://www.jaiku.com/channel/jaikuengine
Our backlog of bugs and feature requests is here: http://code.google.com/p/jaikuengine/issues/list
If you have any questions or need any help then drop by the mailing list or the JaikuEngine channel. We're happy to help in any way we can.
P.S. If you're interested in Open Micro Blogging then you should sign up to the mailing list: http://lists.openmicroblogging.org/mailman/listinfo/omb and help define the next version.