I am updating this design with several improvements:
- Circuit on 3.5 inch square PCB
- More robust phone ringing signal - drives about 10 ringer equivalents
- Reduced power dissipation, no heat sink required
- Lower cost and size - separate isolation transformer eliminated
New circuitry works well on a breadboard. Here's a CAD rendering of the proposed PCB:

The green lump to the right represents screw terminals to attach Telco and Local phone lines. 48 Volts from an isolated "wall wart" switching type supply enters via the 2.1 mm jack at lower left. Mount this board in a convenient enclosure, such as a 4 inch junction box, hook up power and phone lines, and you're done.
This is no longer strictly Arduino, since the processor is embedded directly in the circuitry.
Does anyone have a recommendation where to get PCBs fabricated?