WANEM is a nice open source solution that can simulate Network delay, Packet loss, Packet corruption, Disconnections, Packet re-ordering, Jitter, etc.
It also supports a mode of operation that only uses one network-interface, which makes it super quick to set up a test environment.
EDIT
Although WANEM is a Linux application, you only need to burn the bootable CD and start a machine with that CD, no need to sacrifice a machine to run WANEM. If even that's not an option you can also download it as a virtual appliance that runs in a VMWare Workstation ($$), VMWare Player (free) or VMWare Server (free).
However, in my opinion(based on real usage of such products) it's really easier to have the "network simulator" on a separate machine instead of loading it on either the server or the client under test. And as explained above, thanks to the bootable cd option that can be any machine you have lying around - we typically use decommissioned desktops and notebooks for this purpose.