FLC OF A LEARJET; LR31A; SET THEIR ALTIMETERS TO THE WRONG ALTIMETER SETTING AFTER LISTENING TO ATIS RESULTING IN APCH CTLR ADVISING THEM THAT THEY WERE 500 FT LOWER THAN ASSIGNED. THEY SUBSEQUENTLY; BECAME DISTRACTED AND OVERSHOT THEIR ALT BY 400 FT DURING APCH.

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APCHING ANCHORAGE; ALASKA; ON AN IFR FLT FROM BARROW; AK; THE COPLT TUNED IN ATIS. WE WERE BOTH LISTENING TO CTR AND ATIS AND MISTAKENLY THOUGHT WE HEARD 30.41 FOR THE ALTIMETER SETTING. WE WERE CLRED TO DSND TO 3000 FT. PASSING 3500 FT APCH ASKED OUR ALT. WE RESPONDED 3500 FT AND WERE ADVISED THAT RADAR HAS US AT 2500 FT AND THAT THE ALTIMETER SETTING WAS 29.41. WE SET IN THE CORRECT ALTIMETER SETTING AND BEGAN TO CLB BACK TO 3000 FT AT WHICH TIME WE WERE CLRED TO 1600 FT. THERE WAS A COCKPIT DISCUSSION OF HOW WE MISSED THE ALTIMETER SETTING. DURING THIS DISCUSSION WE INADVERTENTLY FLEW THROUGH 1600 FT DOWN TO 1200 FT. APCH ADVISED US OF THIS AND CLRED US FOR A VISUAL APCH. DURING OUR INITIAL DSCNT WE WERE ADVISED OF VFR TFC WHICH WAS SHOWN ON OUR TCASII AND WAS NOT A FACTOR. IF WE HAD INDIVIDUALLY LISTENED TO ATIS ONLY; WHILE THE OTHER PLT MONITORED CTR WE WOULD HAVE GOTTEN THE CORRECT ALTIMETER SETTING AND NOT DEVIATED FROM ASSIGNED ALT. TRYING TO HEAR ATIS OVER CTR RADIO TFC CONTRIBUTED TO THE ERRONEOUS ALTIMETER SETTING. NOT MAINTAINING A STERILE COCKPIT LED TO THE SECOND ALTDEV. 2 LESSONS I WILL REMEMBER.