It's unclear what technical limitation prevents Apple from allowing the iPhone to function as an iPod without an active AT&T service plan tied to it, because we really (really) want to believe the companies wouldn't arbitrarily disable a feature to keep the cash flow rolling in.

[Via TUAW, thanks Alex P.]

Update:
An anonymous tipster is reporting that the iPhone may only need to be activated once for the iPod (and other features) to work; continuous service isn't necessary after that -- unless you want to use it as a phone and data device, of course.