I am confused by all the people that are pissed about the unactivated price.
If I go to a Verizon store (my carrier) and tell them that I want a new phone, I would not be pissed at them if they asked me to cough up however much the unactivated price is because I am not yet due a new phone under my contract.
Does it suck that Apple is sticking to a 1 year tick-tock with the iPhone? Yes, I suppose it does a little.
Is it somehow Apple's fault that you cannot get the new iPhone 3G S at the new contract price, but before your contract is up? Maybe, but the alternative would have been you paying the $699 or whatever when you bought the 3G. Apple and AT&T reached an agreement where the 3G would be sold at a subsidized price, like every other phone that AT&T sells and every other phone that you have likely ever used has been sold, from most every carrier. This is nothing new. What is new is a manufacturer coming out with a new phone, every year, that you want. This is not 5 years ago. This is not like where you bought your RAZR, and then nothing else was interesting because well... the industry was stagnant so in 2 years you either bought your next RAZR, or the next hot phone at the time.
You signed a contract, that contract states that you will pay the carrier, every month, for 2 years, in exchange for that, you get their service, and a cheaper phone. It also states that if you want to break your contract, you pay a fee, or if you want to switch phones mid-contract, you pay the full price.