I'm in the process of this method. I just got my new AT&T plan on my new Blackjack today. Tomorrow I buy my iPhone and see what happens. I'll let everyone know how it goes. If this works, I stand to get the 8GB model for roughly $350. This includes all of the taxes and both activations fee's as well. This is also after selling my Verizon RAZR which I switched to for free a few weeks before my contract expired.
If anyone else is attempting to switch to AT&T on a different phone (non-iphone), resell it, and apply the money toward an iPhone, watch out for these contractual stipulations from cell phone retailers:
1) They won't allow you to port your number. Sometimes this just means from an existing AT&T plan (which makes total sense), but other times they mean any other carrier, which is not exactly fair. You'll have to get a new number on your new AT&T plan to get the phone discount. I personally don't understand this, because you're still signing up for a new 2 year contract, who cares what the phone number is?
2) They require a data plan or high priced text messaging plan. Sometimes this is pretty easy to spot, other times it's in the fine print. Usually you have to keep the data plan for a minimum of 6 months, which will just end up costing you more than you're trying to save.
3) Beware of Mail-In rebates. Read the rebate form before you make a purchase decision. Sometimes they'll throw something in the fine print there.
4) They won't let you transfer the equipment. This means that the new discounted phone you just got can't be resold or used with a different SIM card for a period of time (usually 6 months).
Just be careful. I'm still not 100% sure this is going to work. Truthfully though, I just got to a point where I decided there's no turning back. I just want an iPhone already! I'm not doing this because I'm cheap, or because I don't have $600. For me, it's the principal of the thing. If I'm signing up for a 2 year contract, I should be getting something for it. There isn't a single phone on any carrier that doesn't get discounted with a new 2 year plan except for the iPhone. Why should I (as a new, switched customer) have to pay the same price as someone who isn't upgrading their contract?
Plus the fact that I had to wait for my Verizonopoly contract to expire, giving me time to devise this sinister plan.