I voted for the phone book, but now that I think more about it, I remember I have used names from people I know, or at least used those names as jumping-off points to the name I eventually use. Mostly, I make it up as I'm going along. But as others have said, that can get you into trouble. A month or two ago, I needed a name for an off-screen minor character, and a name popped up, and I went with it... a few days later, I realized I'd borrowed the name from a state official who was all over the news.
Oh well, I doubt she'll ever know, and I can't imagine it'll be her biggest concern, since I think she was convicted on corruption charges...
PJ