I used the unlock feature in ZiPhone, but whenever I put in my AT&T pre-paid SIM card, it says something like "Invalid SIM. Connect to iTunes." What am I missing/doing wrong?
I reckon you should try a T-Mobile SIM card in it. This would prove that it is definitely unlocked. Have you tried another AT&T SIM or any other for that matter. If it rejects another SIM, iPhone may be faulty.
Therefore virginize iPhone and return him back to the shop where you bought him from and get a replacement.