Answered on the verizon website forums, and also by a tweet on verizon support.
Yes, it makes no sense. They give us all annual upgrades and yet disallow one and only one thing from using it. So, you have to pay full price of $699 and then when your contract expires...they have no way to hold on to you. It makes no sense at all.
I've wanted an iPhone forever. AT&T screwed me over and I wasn't able to get it there, so now I'm with Verizon and enjoying the service and now this. It seems the only way I'll ever get one is to just pay full price, and once my contract is up, never sign again....its just stupid.