A few weeks ago, I was looking into Karaoke software for an associate who was looking to have a party. I found the free open source pyKaraoke for linux, and had set it up at home, where the kids enjoyed it. But when I was digging around for this I discovered SingStar.
SingStar is a series of games for the Playstation 2 (and now 3) that function as competative karaoke. You sing along with selected music tracks, and get points based on how accurate your pitch is. There are numerous multi-player options, and is a very popular party game in Europe. The games are much more successful outside of the US - which is strange considering how popular other music/rythm games like DDR, Guitar Hero, and Rock Band are.
Even more interesting, I found Ultrastar, and Ultrastar Deluxe. These are open source projects that clone the gameplay of SingStar on you computer. Ultrastar is ported to Windows, Linux, and Mac, and Ultrastar Deluxe for Windows runs just fine under Wine, and has a Mac port in the works as well. I'm now running Ultrastar Deluxe on my Ubuntu, and my wife's XP computers (for the kids of course).
The only real problem with Ultrastar is the fact that it comes with no content. A game where you sing along with songs is pretty lame with no songs! http://www.ultrastarsongs.com/ has TONS of songs ready for download, but I'm going to guess that they don't really have distribution rights to this material. So if you are not OK with that, you can follow these instructions to create you own songs, or use this site's premade text files to turn your own music collection into Ultrastar ready content.