In a post today, Penelope Trunk talks about the advantages of rejecting bad candidates on the spot -- for instance, telling them at the end of the phone interview that they're not among the strongest candidates and you're going to be focusing on others.
I will occasionally do this, but more often than not, even if I know during the phone interview that the candidate isn't right for the position, I won't reject them then and there. Instead, they'll receive a (very nice) rejection email within a few days. My reason for this is that some candidates will try to argue with you, continue trying to sell themselves, or try to talk you into reversing your decision and, frankly, it's not up for debate (if I'm rejecting a candidate on the spot, it's because there's absolutely no doubt in my mind). This is the same reason why I never do rejections by phone.