Here's a an excellent short article on when to use open source by open source guru Bruce Perens. I have always been an advocate of using open souce products. The key points are that non-differentiating software makes up a huge amount of the software development, but far too frequently companies don't believe that other companies can do as good a job as their internal developers. Companies also often believe that the software development being done is very core to the business and must be done internally.

I think that a part of the problem is marketing. Few people understand how much open source software exists. From Linux for a Windows replacement to Open Office for a Microsoft Office clone to Compiere for CRM, almost anything that you can think of has an equivalent open source product. A great place to start is Source Forge which is one of the best repositories of open source software.