First and foremost, let me say that I'm no AT&T fan. I don't like that they are the only iPhone carrier, that I barely get coverage at home, and that they are not ready for MMS or Tethering. And even once they are ready, I'm sure I will be outraged by the fees and subscription costs.

That being said, it sure is not their fault that the iPhone 3GS costs $600. Take the latest WWDC keynote. The 3GS was introduced by Apple as costing $199. There was no star next to the price, no little cross, nothing. Just $199.

Phil Schiller did say:

of course these are AT&T prices in the US for new and qualifying customers

...but that's the thing: he just said it. He said it kind of in passing, and with the relevant part of that quote at the end of it (whether or not you qualify). Most people have a visual memory. As soon as they saw the $199 frame, they registered "this phone is worth $199". And at that point, they don't feel like they should pay any more for it. But it's not! the phone is worth $600 ($700 for the one with more capacity). It's more than most computers. As a matter of fact, the phone is a computer.

So once AT&T announced that if you're in mid contract you have to pay $399, almost everyone currently locked-in for a contract on last year's 3G started holding their breath and stumping the ground. But the phone is worth $600. Not $400, not $200. If you want to get it for cheaper, you're basically taking out a loan with AT&T as your lender. Now if a new model of your car comes out you wouldn't feel entitled to have your bank replace your old model with the new one. You wouldn't expect Fannie or Freddie to swap your current home for a newer one. This is no different.

The bottom line is: you always sell a bit of your soul when you lock yourself into a contract. If you can't afford it, don't buy it.