On my cordless phones, “Connecting” is a message that the handset is connecting to the base station. It has nothing to do with the connection between the phone itself, and the outside lines.
Can you plug in a traditional phone? If it works, the problem is with the cordless, not the service.
As for telemarketers, you can put your inbound number on the “Do not call list,” right? If you’ve not entered it, it’s the same marketing whore that a brand new POTS (traditional line) would be.
Actually, that seems like an interesting idea, and may explain how this company call sell the service for twenty bucks a year. The Wikipedia article on the product quotes the EULA as permitting onscreen ads (see below). Perhaps the EULA also permits them to resell your number to telemarketers?
“You also understand and agree that use of the magicJack device and Software will include advertisements and that these advertisements are necessary for the magicJack device to work … Our computers may analyze the phone numbers you call in order to improve the relevance of the ads.”