Is it possible to record live phone conversations on Mac?

I had to do this for a while and I used a little gadget which plug in between your phone's handset and base and has a 3.5mm minijack to plug into you mac line in or a mini recorder of some sort.
 
Can someone tell me the best sort of files that should be used to archive calls? I am experimenting with .wav files and they seem BIG.

You don't want to use WAV files. I would look for something that is good at MP3 compression. I use phone recording software on my Windows Mobile device, and it outputs MP3 files (as well as several other formats). You want something like that. Uncompressed WAV files are going to eat a lot of disk space, and they aren't going to offer you a whole lot in terms of voice quality when compared with MP3 or other compressed formats.
 
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