Head to Mongkok, north of Tsim Sha Tsui. Take the Tsuen Wan line, get off at Mongkok, take the Argyle Street Exit. You'll be in a dense shopping area with tons of electronics malls. Go to 83 Arglye Street, "Sincere House". This shopping center specializes in mobiles, especially smartphones. Each kiosk inside is a small business, so you can jump from one to another and try to haggle, but you'll find the prices are more or less the same.
I bought mine from shop G80, called "Like". They specialize in Apple, and they did right by me. They offer a full year warranty, etc. But you won't find "cheap" iPhones anywhere. My 16GB 3G cost 6100 HKD in 2008, which is like $780. This is the unsubsidized price.
You'll be offered a choice between a SIM-unlocked (flashed) iPhone, which is usually a US version that's been software unlocked, or a HK version, factory unlocked. What's the difference? Well, in some markets, like HK, consumers are protected from being strong-armed by telecoms and are actually given a choice of which carrier they want to use with their phones... imagine that!
From what I understood, the HK Apple-unlocked phones are trouble-free and you won't have any issues when updating the OS, adding apps, etc. And it's true, I've had zero problems with mine, so I do recommend ponying up the extra cash for the HK version.
Hope that helps.
