Yes, doing this exact same scenario for a customer for over 18 months. Scenario:
Customer wanted to "pilot" Cisco IP Telephony (SEs, you know how this goes) but their existing PBX did not offer the level of flexibility we needed to selectively route certain route patterns across a PBX-PBX trunk. So what we did is front-ended the PSTN circuits (2xPRI, 1xCAS) with a WS-X6608 blade, and trunked 3 circuits (again, 2xPRI, 1xCAS) in to the customer's PBX.
The customer had a Catalyst 6500 so this approach was cost effective, but there's no reason this wouldn't work with other higher-T1 density IOS-based solutions (7200, 3700) as well.
At the core of it, there really isn't any "coversion" needed. The call is terminated, the voice path is cut through, and a new call is generated using whatever signalling is necessary to be switched across that path.
Short answer, though, yes this will work.
Good luck.