I did this the other day:
Took a cheap microphone, and had the dude talk into it, and ran the preamp up really really high. Probably hit the tape at about +16. For whatever reason, it didn't come back very distorted.
So, on the Neve VR we were mixing on, the artist had the idea to turn the compressor on, but not use it for compression. Instead, we jacked the line trim, and the makeup gain all the way. This distorted the next stage in the chain. Then the fader was turned down to a reasonable level. With the EQ, we cut the bass at around 200 Hz, and the trebble was rolled off at 5kHz. There was also a massive (+10dB or so) midrange boost applied around 1khz, with slightly wider Q than usual.
The frequency responce of a telephone is approximately 300Hz to 3kHz.
Distortion, in this sense, is created by clipping. And clipping can be achieved by running too much signal into a preamp, and then turning down the output. EQ after distortion, for maximum effect.
If you have protools, try the gain plugin, up the gain really really high, and print it to the file (use the plugin as an audiosuite). Then run the gain plugin again, as audiosuite, and gain it back down. Now add two-band shelving EQ, to taste, but generally, as above.
Sometimes running +4 signals into -10dB gear makes interesting distortion too.
Guitar effect distortion works sometimes, but generally, this isn't the 'low-fi' sound people are looking for.