IMEI gets blocked by AT&T and T-Mobile. All GSM carriers in the US. It will stay at "No Service" ; the iPhone becomes an iPod only unless you use it overseas.
from personal experience, thats exactly what happens.
if you use a stolen phone and the original owner reports it stolen, the phone will eventually stop working with a message saying device is blocked from this network or something. (for ATT and tmo)
and if you have an ATT sim your account also gets locked out.