You know, yeah, you do pay a monthly fee that ads up with the iPhone. But for that monthly fee you get a lot more internet connectivity with your iPhone than you would with your ipod and finding wifi spots (that not all are free so you'd still have to pay to get connectivity there).
I had an ipaq (a non phone PDA) before I had an iphone. I think the thing that made the iphone a lot more indispensable to me was the fact it was pretty much constantly connected where as the ipaq usually was not (wifi was not as prevalent and even as much as it is now, it still would end up mostly being used where I don't have wifi connection). That internet connection allows the item to be a lot more useful (Find the closest theater, find the nearest restaurant, look up an item you are thinking of buying to see reviews, boredom buster/internet surfing where ever you happen to be, facebook checking, being able to be much quicker reached by email).
So, I'd say the monthly fees aren't just going to pay for your iphone, but for having internet in a large area so I don't think it's fair to just add up the monthly fees and say that's the cost of the iphone. You're also paying for a service there (readily available internet). A service that adds a whole lot of functionality to the phone.
And OP, you can also pick Verizon if you don't like AT&T. I'd personally sign a two year with one of them (who ever has best coverage in your area) and get the 4 with contract so it will only be 200/300 depending on size.
Why go with the 4 over the 3GS? It's going to be supported a lot longer. If we go by Apple's pattern, the 3GS is about to get the same treatment when iOS 5 comes out that the 3G did last year. And it's getting close to it's two year old mark where Apple is a lot less supportive of it. So you're going to get a phone that has less than half a year before Apple decides to start phasing it out if you go with the 3GS. And if you do get the 3GS, don't come whining on here if Apple decides to not allow it a lot of features when they release iOS 5. You were on this forum, you should have knowledge of Apple's pattern. And you chose to go with a phone that is going to get the "We'll support it just a little" in just a few months (I got sick of people last year bitching that they just got a 3G and now Apple was phasing it out. Well, it was almost 2 years when you got it. If you wanted a phone that had longer support, you shouldn't have bought a 2 year old design!!)