In a repeat of last year's problems, it looks like the insane demand for the iPhone 3G has taken its toll on Apple's iTunes activation servers -- that's a picture of iTunes locking up in the Chicago AT&T flagship earlier this morning. We're hearing that the servers are now definitely down after being intermittently active for the past few hours, and that customers are either being turned away or sent home from both Apple and AT&T stores to activate at home using iTunes. That's especially interesting since it suggests that AT&T was insisting on in-store activation to thwart unlockers, but for right now the real news is that lots of eager iPhone 3G buyers are stuck with two useless phones, since upgrading from a first-gen unit disables the SIM. Ouch. We'll keep you updated.

Update: Apple has confirmed to us that activation is down, and that customers are being asked to take the phone home and activate via iTunes later. We're not sure what good that'll do, since the servers are down no matter where you are, but Apple says it's "working on a solution." In the meantime, it looks like the new SIM works in first-gen units, so at least upgraders aren't totally phone-deprived. Oh, and remember that updating a first-gen iPhone to 2.0 requires hitting the server as well, so if you haven't taken the plunge we'd say hold off until this all gets sorted.

Update 2: In related news, those updating their first-gen iPhone to 2.0 are also getting caught in the activation shuffle, leaving some with bricked iPhones. In our test case, the activation servers came back up after about 45 minutes just long enough to get 2.0 running on our first-gen iPhone, but not all have been so lucky. Is your first-gen iPhone stuck in activation limbo from the update? Let us know.

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