For years I had an old Nokia phone and was on a contract with O2 that didn't cost me a penny - I just kept saying I wanted to leave and didn't need a new phone and they gave me huge incentives to stay, even though I never paid them anything.
Then last year, they said no more incentives to stay - fair enough, I cancelled the contract and actually got a refund of credit that had accrued - quite amazing. I must have had about 3 years of free mobile phone contract (x 2 as my wife was on the same deal).
I went PAYG with O2. I had an iPod Touch and loved the interface which is the same as the iPhone. Then the iPhone 3G came along - no way was I going to pay for that on contract - however luck struck again, a friend was upgrading from iPhone original to 3G and gave me his old iPhone
I top up £10 a month and that gives me the Web and Wifi 'bolt-on'. I get 500 minutes to call any O2 or std landline free from my chosen postcode, so rarely have to top up for calls. I don't use text messaging (old geezer)
But I do have AIM and TruPhone and Skype and all those great things with the iPhone.
I forgot, I also love the integration of MobileMe with my Macs and iPhone, quite superb.
Yes, I'd love an iPhone 3GS but I'll wait for another bargain.