I know you've all probaby worked this out but thought it was interesting to find out. I bought the PAYG 32gb 3GS on launch day 2009 and used my simplicity sim in it (£20 a month). If I upgrade to the 4G on launch day and trade in my phone on ebay/recycle sites I will end up paying EXACTLY the same money as I would have paid if i was on an 18 month contract. Workings below:
PAYG/simplicity route
Original cost of phone: £549
Contract length and cost: 12 months at £20 (£240)
Buyout cost for early upgrade: £0
Ebay/Recycle old iPhone trade-in price: £350
Total money paid over 12 months = £439
18month contract route
Original cost of phone: £249
Contract length and cost: 12 months at £35 (£420)
Buyout cost for early upgrade: 6 months @ £20 (£120)
Ebay/Recycle old iPhone trade-in price: £350
Total money paid over 12 months = £439
So conclusion is o2 know exactly what they are doing and this isn't an "offer" at all.
I haven't made a decision as to how i'm upgrading to 4G on launch day but i'm inclined to stay on the PAYG/simplicity route as it means i won't be hoping o2 repeat this early buyout clause in the years to come and am free to upgrade every cycle if i deem the latest iPhone upgrade to warrant it.