iphone4

hi all, youll have to bare with me cos im not very tech minded. right, i live in the uk if that matters, i got the iphone 4 last november and lost it in january, made an insurance claim, paid my excess and got a replacement( 2nd hand one i think). then a couple of week later i found the lost one while cleaning out my van so i went into the phone shop to explain cos i used their insurance and the girl said theres not much that can be done but i could use the handset as an ipod which i did do, untill this morning when i accepted the new update without thinking. it locked up with the apple icon and the spinning loading icon, so i went in and restored it to factory settings. now it wont let me into it without inserting a sim card. is there anything i can do to put it back to using it as an ipod? thanks alot for any solutions.

 

would that be legal, dont want the apple police crashing my door in?