Any idea why AT&T didn't use the 3G network on the iPhones?
I think you meant to ask why Apple didn't use 3G?
To anyone with manufacturing experience, the answer is easy: cost. Pure and simple. Once it's decided not to include a feature, every other public answer is just marketing and fanboy spin.
Other phones that came out at the same time have 3G and do just fine. Some have better screens and GPS. Most have a dedicated button to allow the user easy access to turn it (and all other radios) on/off to save battery if wished. Also they have swappable batteries for heavy users.
So watch. When Apple does come out with a 3G model for Europe, all of a sudden all their public reasons not to have 3G will disappear, even though they'll be using chips that were already available.
In short, it was cheaper to claim WiFi was their "answer", even though WiFi coverage in many areas is as sparse as 3G.