In order to fit the PCB and the battery, I have to remove some components and cables. The first component is the big capacitor on top of the rotary dial mechanism. To remove it, unscrew the screw circled in the picture. This releases the bracket holding the capacitor. To remove the capacitor, disconnect the cables connected to the screw terminals. The red cable is soldered to one of the contacts. To make a clean job I suggest to carefully unsolder the cable. If it gets too messy, just cut it.
The next step is to remove the metal plate holding the capacitor. Remove the flat head and the phillips head screws. After removing the plate you should reinstall the flat head screw to secure the mechanism to the chassis.
Next, unsolder (or cut) the blue, white, yellow and red cables from the transformer. Since I don't need it any more I simply slide the white sleeve over the cables and tuck it underneath the transformer. Next, cut the jumper on the contact assembly. This jumper short-circuits the rotary dial contact and won't let the dial correctly interrupt the circuit while dialing.
To wire the telephone to the PCB I used colored stranded cable #28. I got the cable from a 3-ft DB-25 to DB-25 cable. I twisted all cables to make it easier to bundle and to handle them, and to reduce noise to the microphone.
Since an ON/OFF switch is required, I tried to keep the shell as original as possible and avoided drilling holes. I placed a very small switch in the back of the chassis where originally the phone line cable is secured. The mini-switch protrudes out barely peeking out of the original hole, just enough to move the lever with the finger nail.
I soldered the hook (yellow), rotary dial (orange) and common (gray) cables to the contact assembly. The two prongs on the picture are the original contacts that connect to the receiver (ear piece). Since I will use the same prongs, I connected the green cables to the contacts. This will allow at any moment to remove the shell without having to unsolder the receiver.
The LiPo battery can be placed either on top of the dialing mechanism, or on top of the PCB. I put it on top of the mechanism. The battery sort of locks in place when moving it a little bit around. Just make sure that the battery won't interfere with the gear axis below (see picture). Secure the battery with double-sided foam strips (1/8" thick). You can get it at any crafts store (e.g. Michaels).
Using the same type of foam, secure the PCB to the battery. Just make sure that the PCB is centered on top of the battery and doesn't interfere with any other component. (The blue cable coming out from the center of the PCB is temporary, since I am using it to debug the software).
To avoid drilling holes I decide to put the ON/OFF switch and the battery charge connector in the rear of the telephone, where the original line cable is attached. I used a micro-switch (C&K) and a mini power adapter connector. To make some space I had to cut the metal piece on the shell and attach it with glue, so it doesn't fall off when you open the shell. I attached the electret microphone to the existing microphone copper contact. First, I covered it with a shrinking tube and then I secured the tiny microphone to it using hot glue.
Here the final pictures (notice the tiny scale).