I had a go with a colleagues phone yesterday, he did a pretty good job of selling it to me 🙂
I only want it as an entertainment thing for quiet moments at work (which there are likely to be with a arrival of trackers on our vans!) don't actually need it as a phone.
With that in mind, PAYG looks very attractive to me, £440 (from Tesco) for the 16GB 3GS with £20 topup and 12 months free internet. Some of the cheaper 18/24 month contracts work out at £700 – £900 including any charge for the phone.
Edit: If you include a second years internet for fair comparison, the PAYG costs £545.