I just turned my droid into a police scanner and it's free! First, I downloaded Cherry Rplayer from the market. This is a highly rated free audio stream player. There are others like Droidlive.
There was a post a month or two ago that was similar and droidlive lite was recommended to do the same thing. I tried it at the time and thought it was pretty cool. My town wasn't listed but some of the other ones nearby towns were covered.
At the time there was discussion about how much better it would be for the paid app to have a listing of all the towns available prior to purchase. No idea if that exists now or not. Another cool feature would be a roaming gps one where you could toggle between your favorite towns or just have it know, via gps/cell-tower where you were and grab the scans for that location.