I use a router and a router template. The results look really good,
much better than the hand made mortises I run into that require things
like shims to get hinges to line up "close enough". The router
template comes with a bit and costs about $20 at HD or Lowes. The
router itself is a Harbor Freight trim router:

http://www.harborfreight.com/cpi/cta...emnumber=33833

That sells for $40. Then you need to practice on some scrap wood until
you get it right. I've used my router and hinge and strike plate
templates to hang 4 doors so far, and I would never attempt to do it by
hand. Plenty of people will say that doing it by hand is "good enough"
but the ones done by hand are terrible. It's impossible ot make it
level unless you use a router. Plus the router this is real easy once
you know how to use it (hence my suggestion to practive on scrap wood).
You might also need a corner chisel.