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Even if you could make the iPhone work without activating it, it would be no different than an iPod touch.

Get an iPod touch, cost less and more storage space.
 
You can trick it into being activated and use it without service. For the extra $100 you do get quite a lot, so it's something to consider. There's another active thread that's longer than this, so try looking there for some more info.
 
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