Whom To Invite?
Invite the kinds of people who are going to be using the product. If it's targeted at Web-savvy grandmothers, invite a couple of grandmothers with modems (it could even be your grandmother - although watch out for the "Oh, it's very nice! I remember when you were this big! Have a cookie?" phenomenon).
We now have a large database of people we call on regularly who are all ages and have all kinds of Net experience. We pay them money now, but we started out by just asking our friends and roommates and giving them beer. They got a kick out of it and we got a much better product in a matter of hours.
One thing to remember: When you're picking people, it's important to try to eliminate what psychologists call "bias." Choose people who match your target audience, but who don't have a preconceived notion about your product. For example, if you're making a site for Coke, don't get people who work for Pepsi.
Sometimes just asking people who haven't seen the site in a while can help. However, if you want to get the most useful responses, it's best to get people as far away from the site's production process as possible (in which case you may want to put your grandmother toward the end of the list of available grandmothers and choose her only if all the other grandmothers are out playing basketball or something).
As Jakob Nielsen has shown, you can flush out the majority of problems in an interface by showing it to only a couple of people. We've also found this to be true. Four to five people seems to be the optimal number: You see most of the problems you're going to see, and you can do the evaluation quickly.