So like a gadzillion people have asked me: "What do I do with my old iPhone now that I'm upgrading to a spiffy new 3G unit?" I thought about doing a top ten list. I thought about clever and amusing ways to use an old iPhone. But seriously, it just comes down to this. So read my lips.
Jailbreak it. Unlock it. Give it away or sell it. The end.
Get yourself a copy of iLiberty+ or ZiPhone or whatever tool you like. Once unlocked, you can sell it for a badzillion dollars on eBay, because contrary to what I originally thought, AT&T isn't going to let you walk away with a new 3G iPhone without signing over your first born, your personal bank account and possibly your soul. So the demand for 1st gens is going to go through the roof (as will the demand for posthumous mobile air conditioning units once AT&T is through with you). Over at Google, those $250 refurb iPhones from a few weeks back are going for $500 and up. Ebay has relative bargains at $350 and up.
If you have a child, a spouse, a dog or any other loved one, you can now give them the phone with a T-Mobile or AT&T SIM and they're good to go. If any of these loved ones are foreigners ("votre chien", for example, in the case of those north of the border but within the Quebecois borders), they should be able to use a non-US SIM in the unlocked unit (i.e. "Le Rogers Fido").
As we've posted before, AT&T says it will reset your contract to 2 years once you get the new iPhone, so your old one will be completely free, clear, and contract-free. No one (except, perhaps, your dog) will sanction you for unlocking it.