1. Apple hasn't officially announced the 3G iPhone so there is no telling if there is an upgrade policy as of yet. However, I doubt they would just let you trade in your current iPhone for a new 3G one.
2. Are you talking about getting a 16GB 3G iPhone? I've heard from one person that was able to successfuly upgrade from an 8GB to a 16Gb by paying an additional $100 but I doubt Apple would allow you to go from v1 to v2.