Yes, you read the headline correct; you will pay more for a new Apple iPhone3G than you would have spent on the previous version of the iPhone. How can this be, you ask? The iPhone3G models are priced a full $100 cheaper than their predecessors. True.
But the total cost of a two-year contract with AT&T will wind up more than eating up what you save on the less expensive, iPhone3G handset. iPhone3G purchasers will be required to commit to two-year contracts and to activate the phones at the store at the time of purchase (in order to qualify for the $199 cost of the 8GB model, or $299 for the 16GB). At $69.99 per month for the cheapest voice plan and unlimited data, you'll be spending $10 more each month for wireless service (and that's before tax) than you would have with the previous-generation iPhone.
At the end of two years, an 8GB iPhone3G will cost you $1,879; the previous iPhone would have cost you $1,739 at the end of two years. You'll wind up spending $1,979 on a 16GB iPhone3G after two years; while the previous-generation 16GB iPhone would have set you back $1,839.