The technology is potentially recordable by the Skype servers.It’s not confirmed, but we have to assume that it is possible.
So enormous that in my opinion, wholesale recording of all Skype traffic is quite impractical.
Not to mention that it would be a public relations nightmare if discovered. They have much better things to do than listen to your mundane conversations. What if you are really “interesting”, by someone’s definition?
So the question then becomes, since they probably don’t record everything, why would they record conversation? It’s possible – perhaps even likely – that government agencies have access, under certain conditions, to your Skype conversations.
In this regard, I point to what I believe boils down to many people’s over-inflated sense of self-importance (and even occasional paranoia). If that’s you, my advice is very simple: don’t use Skype.
I don’t have a specific alternative for you, but I expect that several will be recommended by commenters. The person at the other end of your conversation – be it video, audio, instant messaging or email – can record it all, and there’s nothing you can do about it. From what I’ve seen, this type of extortion, which is not limited to Skype at all, is on the rise.