A good collection of resources on the legality of audio recording of telephone conversations is at the Reporters Committee for Freedom of the Press site. They include a state-by-state summary and a list of case citations. The enforcement of the law is conditional. Remember Linda Tripp, whose indictment was dropped by Maryland prosecutors.
The FCC has its own words of wisdom on the legality of tape recorded telephone calls. Their statement on interstate phone communication cuts to the chase. The complete list of the current FCC telephone fact sheets is here.
The FCC protects the privacy of telephone conversations by requiring notification before a recording device is used to record interstate (between different states) or international wireline calls. Interstate or international wireline conversations may not be recorded unless the use of the recording device is:
• preceded by verbal or written consent of all parties to the telephone conversation; or
• preceded by verbal notification which is recorded at the beginning, and as part of the call, by the recording party; or
• accompanied by an automatic tone warning device, sometimes called a “beep tone,” which automatically produces a distinct signal that is repeated at regular intervals during the course of the telephone conversation when the recording device is in use.
Also, a recording device can only be used if it can be physically connected to and disconnected from the telephone line or if it can be switched on and off.