With a 3G iPhone looming on the horizon, an AT&T spokesperson has suggested that older phones be downgraded to an iPod touch upon the arrival of the 3G model.
Another alternative, and IMHO the most sad way, is to downgrade your iPhone as a WiFi-enabled iPod Touch. As what an AT&T spokesperson has confirmed that neither AT&T nor Apple will prevent de-activated first-generation iPhones for serving as surrogate iPod touches.
The spokesperson said: "If the [original] device is not re-activated as a wireless phone after you’ve upgraded to iPhone 3G, it will still work as an iTunes player and can access Wi-Fi.”
That would means old iPhones can still surf the web, check email, and browse the mobile iTunes store when connected to WiFi. Additionally, they'll be able to function as a handheld gaming device and widescreen video iPod with calendar and photo functions. 
