Possible to convert iPhone to iPod Touch?

I currently have an iPhone and am planning to replace it with a new 3G iPhone when it comes out. My 5 year old would love to have a iPod touch. Is there any way to convert my existing iPhone into an iPod touch and keep it working?

My understanding is that you have to have an active subscription for the iPhone to do ANYTHING. But if you were to turn on the Airplane Mode and keep it on, it could never ping the AT&T network and presumably it would keep working. Does syncing to iTunes check for an active subscription as well?

I invested $400 in this iPhone and I'd like to get more than one year's use out of it. Can anyone offer some advice and/or insight?

Many thanks in advance!