You're right on both parts, essentially. I think they also were monitoring calls originating in the US that were made to foreign numbers they believed to have ties with terrorism, too, but honestly it's hard to really figure out what the truth is and was with so much fear-mongering and hyperbole going on.
No, the reason why it's hard to find out the truth is because the government has attempted to cloak the entire process under a "states secrets" privilege. When you decide, as the elected officials of the country, to hide every aspect of your executive plans from your electors, the judicial system, and Congress, you should not be surprised if "hyperbole and fear-mongering" enters the vacuum.
Oh, and the program itself wasn't really new, it's been around forever. Bush & Co. just tweaked the rules around a little bit -- a move that I think was less about invading the privacy of Americans (which they've been able to do for several decades now) and more a matter of removing a bottleneck. The whole secret wiretap deal has to be approved by a secret court, I think there's a 24 or 48 hour window in which they can start a wiretap and then seek approval by this secret court. Well, in the wake of 9/11, they were using this quite a bit, and I'm of the belief that they circumvented the court not because they wanted to be Big Brother but because they knew that most these wiretaps would NOT result in any information but felt that at the time it was best to cast as wide a net as possible, immediately, and later worry about narrowing things down from "possible" to "likely".
This is all supposition on your part. Reassuring supposition, but as absent of proof as the most paranoid theories. If it were the case, there's a very simple procedure the administration could have followed: it could have gone to Congress and asked for the "paperwork", as you call it, to be reformed. That paperwork is there for a reason: it is so we can keep track of who follows the law, and we are nation under the law, not under men.
As it is, we know that there was a new "President's Surveillance Program", that differed substantially enough from previous practice to be described as such. We know, thanks to Mr Klein, that there was an installation in San Francisco whose abilities far exceeded those required for lawful interception. We have a group of telecom companies who seemed so unsure of their own legal position that when asked for the simple, legal authorization documents to clarify the lawfulness of their actions, they lobbied for (and got) blanket retroactive immunity, using the argument that they might owe billions in fines (a possibility that could only have occurred if the numbers of those wiretapped were counted in the hundreds of thousands).
What's a more sensible attitude in the face of apparent law-breaking by the highest levels of government, working in concert with our largest corporations? A genial "well I guess they had their reasons," shrug or a demand that the other branches of government use their power and the responsibility to uncover that illegality?