I use Hamachi as the network channel between us, then use NetMeeting and Skype. (It's not completely clear to me why we're using Hamachi for this; I think NetMeeting can work without it, but that's how we got started and it works, so we just keep doing it that way).

We both have to change to 1024x768 resolution so that the response is OK, but that's quite tolerable. Then I work on editing the book while he looks over my shoulder and ensures that I don't change the meaning or introduce errors. Occasionally I give him control, when he needs it, but usually what I'm doing is editing his work. It works surprisingly well. It even seems like it is better than if we were in the same room, because then we'd have to be jockeying for physical space. Here, we each have our own screen. And since neither of us have to travel to do this, I'm convinced we are getting more time than we would otherwise, and it's much easier to get small chunks of time now and then (we have sometimes traveled to meet, and then we end up trying to cram lots of time in, past the point of diminishing returns energy and concentration-wise). Occasionally he can even take care of kids while his wife is out (by plugging them into video), and we could never get meeting time in that situation otherwise.

Before we did this, I had struggled with trying to find remote code-editing systems because I had a(nother) case of premature optimization. I had an earlier experience trying to share desktops when one of the participants had insufficient bandwidth, so I was convinced that I needed to find something that just worked with character editing instead of copying all the bits from one screen to another (and even at the lower 1024x768 screen resolution, the response is not instantaneous, but it's usable).