Mine was a graduation gift. :-) The whole experience was kinda funny, given the attempt to regulate the in-store activation. I have read about ornate and complex processes that were enacted in Apple stores to make this happen and, overall, seemed to have been reasonably effective. As it turns out, not even an hour into my 3.5 hour wait at an AT&T store, they noted that the iTunes system was down. What did they do? Initially they tried to keep plugging away, waiting 10-15 minutes for a response from the server. When they realized it was a no-go they just did the AT&T portion of setting up the account and let buyers take the phones home to activate them via the tethering to iTunes. Ha! I'm guessing we could have done it the original way the whole time. I'm sure someone will turn up with an untouched iPhone 3G who will report that they are still able to go through the whole account setup, activation, and registration process via iTunes.
If it follows that AT&T does do a no contract setup for $599 and $699 they'll be idiots. People will get the iPhone, sign up for a contract, break the contract, pay the $175, and still sell the phones for $500-$600, cheaper than the retail price. That, or simply keep it for themselves and effectively pay less than retail.