Shouldn't AT&T prepaid sim card work on the iPhone without needing to unlock? The iPhone is carrier locked but can't I use a different service from AT&T if I canceled the contract?
If you really wanted to pay the early termination fee in full and not be allowed to enter into another contract with AT&T, go for it and let us know how it went.
Then you have to get at&t to block the data, otherwise the phone will still try to access (depending) or you can get the Pay-as-you-Go Unlimited Data Plan.