I've been telecommuting for a little over a year now, so I thought I'd share some of my experiences.
First of all, a little background: I'm a software QA engineer for a networking company in Silicon Valley, I live in Brooklyn, NY. I lived in San Francisco for the first year that I worked at the company, so I got to know everyone and establish work habits etc. Some of my duties are things like writing test cases, writing Perl scripts as utilities or automated tests and actually running tests.
The first two of those duties don't require any special setup or speed, but the third requires quite a bit.
I need to be able to remotely control unix machines, NT machines... I need to be able to unplug network cables, power-cycle machines. I need to be able to communicate with developers and QA people. I also need to have a presence in the company. Here's how it all pans out:
Fortunately I have an extremely responsive sysadmin (read:kick-ass) who has set things up at the company side such that I can powercycle machines by executing simple commands, so that I can telnet into switches and dis/enable ports (simulates pulling a network cable). He has installed WinVNC on all the NT boxes so that I can run VNCviewer to control them (this requires pretty good bandwidth as it's basically a remote framebuffer). I have an UltraSparc sitting in a rack somewhere that is exclusively mine and I connect to it using GO-Global which works exceptionally well and doesn't require much bandwidth. Finally, we use Ravlinsoft's VPN. The company provides me with 384x384 SDSL which works great. Controlling my solaris box feels almost like I'm there. (for the first year I had 192x192 SDSL and it was also great. There really isn't much of a difference except where VNCviewer is involved.
Once you get the technical issues resolved, there's a lot more to deal with. You need to learn to allocate your time (at first I had trouble with not doing enough work, now I have trouble with spending far too much time working). Don't let yourself fall into the trap of pulling all-nighters (oops, looks like I'm pulling one tonight).
A couple of things to remember are: when you're in the office and you get burnt-out, you just go over to a co-worker and chat. At home, you should allow yourself breaks as well. Don't feel guilty about throwing in a quick game of Quake3 on your nice DSL connection, but don't let one quick game turn into nine.
Be sure to get out of the house. You will become trapped here if you let yourself. Make some friends at your new location and spend time with them.
Don't let the people you live with distract you. This one is really tough. I want to spend all my time with my SO, and she's more than willing to let me. You need to say "get out of here, I have to get some work done". I still have problems with that
Try not to procrastinate. It's very easy to say "Well, I want to watch TV now, I can always finish this up later" when your commute is so short (15 seconds or so) but I have found that the later it gets the more tired you become and the harder it is to get back on a roll. (Why am I posting this message rather than finishing up those tests... doh!)
In order to maintain a presence at the company, I am flown out there for about 2 weeks every two months. If you're company is willing to do that, it's pretty cool and be sure to eat steak often when you're expensing it. The problem with that is, I have gotten used to working in a mostly distraction-free environment (excluding the SO) and so being back in the office, full of people who would just love to take my time, can make it difficult to remain focused.
Try to minimize expense reports when you're at home. I found that I was calling the office a LOT but I'd never take the trouble to go through my phone bill and figure out what to expense. Once the company gave me a calling card, everything was much nicer. Along those lines, if you don't have a lot of credit or cash in your bank account, try to get your company to provide you with corporate credit card and car-rental card. This takes a lot of the headaches out of those trips to the central office.
So, the final bit: yes, it's possible- even when there are a lot of technical hurdles. The benefits are great, especially if your manager is a "results oriented" person rather than a micromanager. Note: if you plan to be a manager remotely, it's probably not too feasable. That brings up another point: working remotely can prevent you from progressing in the company. Assuming that you want to head toward a management position (which I don't) you might find that avenue limited.
I'm sorry this has been so rambling, but I hope it provides you with some useful information.