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Nowadays, Sim cards are becoming very cheap and you can buy them in normal shops and stores. In the old days, you only found Sim cards in the Ethiopian Telecommunication offices, which is currently called Ethio Telecom. Sim cards are more available than they used to be and they are cheaper than ever.
So, why not buy a Sim card?

Well, first you need an ID to buy a Sim card and for foreigners who are traveling to Ethiopia for business or pleasure, that's a bit of a problem. So Sim card rental is the best choice available.
Some people don't even bring their iPhones, Galaxy phones or other kinds of smartphones because they believe that it wouldn't work in Ethiopia. Most of the unlocked phones work in Ethiopia, and the rest will work with a few tweaks here and there.
As far as i know, for iPhones, if your iPhone can be unlocked in your country, it will be unlocked here. I would advise you to bring your smart phone to Ethiopia as it can be used for recording videos or taking memorable photos on some of the most beautiful places in Ethiopia. But if you still don't feel like bringing your phone to Ethiopia, you can also rent phones along with the Sim card. But don't expect Siri to tell you which places to check out or expect the Galaxy S3. You will have a Nokia phone that provides basic services like making and receiving calls.
If you are a heavy internet user and want to talk to your family via Skype, you can also rent 3G Sim cards. The 3G Sim cards has a high speed internet connection but at the time of writing this post (May 29, 2012), 3G connection works around the capital city Addis Ababa. It works in most of the major cities outside of Addis Ababa but the coverage of 3G is still low around the country.
EVDO or CDMA coverage is better than the 3G coverage in Ethiopia and if you're thinking about using interent, i would highly recommend either EVDO or CDMA.
Out of those two, i would recommend EVDO because it has a very good speed and it's somewhat affordable. EVDO is around 10 - 12 times faster than CDMA and you are charged in terms of bytes sent or received (upload and download size), unlike CDMA which charges you in terms of minutes used.
ProEthio is one of the providers of Sim card, Evdo and Cdma rental services in ethiopia. Here are their prices and contact information. These are the prices at the time of writing this post (May 29, 2012)


Normal Sim Card 

• 3 USD per Day
• 15 USD per Week
• 40 USD per Month

3G Sim Card

• 5 USD per Day
• 30 USD per Week
• 60 USD per Month

Normal Sim Card with a Mobile Phone

• 5 USD per Day
• 30 USD per Week
• 60 USD per Month
• Refundable Deposite of 30 US Dollars. 

3G Sim Card with a Mobile Phone

• 7 USD per Day
• 40 USD per Week
• 80 USD per Month
• Refundable Deposite of 30 US Dollars. 

CDMA

• 10 USD per Day
• 40 USD per Week
• 90 USD per Month
• Refundable Deposite of 70 US Dollars.  

EVDO

• 10 USD per Day
• 40 USD per Week
• 90 USD per Month
• Refundable Deposit of 70 US Dollars.  

Note - EVDO users will have to recharge their balance themselves.

You should email them and make arrangements before you come to Ethiopia. Here is their email address -  proethio@gmail.com