Im looking for a solution thats not expensive to test my networked code and was looking at VPS (virtual Private Servers???) but I heard this isn't good for game hosting

For turn-based games, VPS (or virtualization in general) can work just fine. For real-time games, virtualization (VMWare, Virtual Server, etc) won't do well enough, because virtualization introduces large latencies -- especially when you're sharing the physical machine with others.

I think you should define what you want out of "testing the netcode." The cheapest way to test code on the Internet is to put the server up on your own machine over DSL or Cable modem (with the appropriate firewall port forwarding), and then go to another connection (a friend's house, or school, or a WAN card in a laptop) and connect from there. Note that you might want to debug the server while being connected, so a WAN card, or the ability to connect to your server through X11 or Remote Desktop is useful.

Once you want to actually host games for the greater Internet, getting a self-managed dedicated server is the right thing to do. Bargain basement prices often start around $60/month, although the machines you really want for action games are $120 and up.