I've just commented on a similar thread. I'm on a Simplicity sim as my contract expired a couple of months ago. Knowing the iPhone was imminent, I held off entering another contract. I have been told that all the functions of the 3G S will only be available on a current 3G S tariff, therefore you cannot use a Pay & Go, or Simplicity Tariff/Sim.
I was told that I would be able to retain my current sim card (as it's 3G enabled) and the tariff would automatically be transferred (so taking that literally, I should be able to pop my current sim in the new 3G S on Friday).
@oililymad, I would suggest from that info, that you pop your Sim card in before registering through iTunes but would probably check with O2 before you do.