Robin2:
A cheap off-the-shelf walkie-talkie would almost certainly be much better as well as cheaper and less trouble....R
Sure, that is true but I would like to do this for fun 
Thanks robtillaart. I doubt 3-4 KHz would be sufficient for very low quality speech, would be just a mess. I thought the 328 can sample the ADC faster though, 200KHz theoretical? I would need about 20Khz
I do have a bit of basic question, would I be able to play sound like this:
Device 1 gets input from microphone ADC (10 bit 20 KHz)
Sends to device 2 via Xbee (215kbps, under 256kbps). No error checking needed.
Device 2 plays (amplifier needed?) it directly to speaker through DAC output
My understanding is that this should be practical for 20 KHz (actually 40 KHz, input and output) - with 16MHz, I would have enough clock cycles, right? And I can read directly from a microphone with ADC, and write to a speaekr via DAC?
thank you, really appreciate the help
Also, I will be writing and attaching the interrupts myself to get rid of the Arduino overhead.