I will be in Europe for most of the next three months.  What is the
best phone/rate plan option so that I have service in US and in Europe
(ideally on same phone number) at reasonable price ($1/mo for calls
over there is NOT reasonable!)?

Is there a flat rate option?
The best I have found is 99c/min for T-Mobile and $1.29/min for ATT,
both of which seem VERY expensive.

I travel to Europe frequently for my own business, and until now have
used a French cellphone when there, and an Italian cellphone when in
Italy.
I am now planning to buy a new cellphone and service (with either
T-Mobile or ATT, probably - due to GSM network and coverage).

Thanks!

I go to Eurpope several times a year and used to run into the same
problem.  What I did was bought a GSM phone from T-Mobile and had it
unlocked (meaning I can put any carriers sim card in and it will
work).  When I get to Europe I just buy a prepaid SIM card (prices
vary.  5-20 Euros depending on time) and change it out. The phone
number changes to a European on while the differenct sim card is in
the phone, but you get normal rates and not the $.99-$1.50 that
T-Mobile charges.  Also, you can get a SIM card from T-Mobile in
Europe.  I am not sure though if the number stays the same or not. 
Hope this helps.