Correct, you DO have to have call waiting from your phone company (and if you have caller ID too, the name pops up onscreen).
And your ISP must support a V.92 modem feature called "modem-on-hold". Most ISPs seem to by now. (If yours doesn't, maybe you still can take calls while online--I'm not sure--but your Internet will be interrupted. Modem-on-hold means that for 3 minutes, your connection will stay "paused" so you can resume your downloads painlessly after a brief conversation. If you talk longer, the modem disconnects and you just dial in again later.)
This is very cool and it DOES work for me. If you have a V.92 modem (recent Macs do) and call waiting, try it!
The thing is, it only works sometimes. One call will give me on-screen notification... the next will not.
I'm guessing the problem is my PowerBook or Panther... but could it be my ISP somehow blocking calls?
Which is why I'd like to know if ANYONE gets call notifications reliably. If so, I'll change ISPs and test some more.
If not, then maybe this OS X feature just doesn't work yet (a shame since it was an incentive to get a new Mac--AND I've paid for call waiting). Or maybe my PowerBook needs repair.