alright, i got mine working with pay as you go. just use a regular sim card and activate normally online by typing in the sim number, zip code. but when you get to the imei number, type in all 1's (111111111111111). it won't work if you type in the imei of the iphone. once you're done, it'll give you your phone number and access to the gophone members section.
so you have 2 options, either cut the regular sim card to fit into the iphone 4 or call up att and have them transfer your number to a microsim. i just cut mine and it works fine. i'm currently using the $60/month with unlimited calls/text, but no data.
everything on the iphone 4 works just like having a contract plan. facetime works as well.