My situation is the following:

I have an internet connection, which is shared between people. More or less obviously, people is using it to download illegal stuff.

Since I'm the owner of the connection, I want to avoid being sued. I don't want to prevent the people from doing the things they want, but I want to be legally safe.

Now, I have relatively little competences in network administration, so I was wondering:

• is it possible to setup a network, where the source and destination of the packets are logged? I would use this to prove, in case of lawsuit, that the traffic was coming from a given machine.
• if the idea is feasible, is there any wireless router on which I can install linux, where I can install the packet sniffer?
• how much space could the logs take (containing only the timestamp/source/destination), per GB of traffic? a very rough estimation would be very helpful.
• if a machine on my network is sending bittorrent packets to a certain IP, would this log be able to reflect the time, source ip and destination ip? I assume that obviously the torrent data would be encrypted and un-decryptable.

Am I missing something? Is there a better strategy?

Any pointer to documentation would be helpful as well - in that case, I would use this as starting point.