WARNING: The methods described below to avoid signing up for 2-year contract with AT&T does not appear to work as of November 2007. Users are advised to follow the Apple and AT&T's recommendation and sign up for the 2-year contract with the iPhone.
According to both Apple and AT&T, iPhones require a two-year contract. But, we discovered that this is not quite true (as long as AT&T does not change the existing process). One of the evaluation team members had run into this by accident in late June 2007.
Basically, if the iTunes software and AT&T's system cannot do a credit check with the information you entered (e.g. 999-99-999 as your social security number), you will be provided the option to use a "Pick Your Plan" plan (pay-as-you-go option) that does not require a two-year contract. While it is a bit more expensive (~$5 extra with equivalent options) than going with a two-year contract, you will not incur any early termination fee if you decide to cancel the service. You can always convert to a two-year contract in the future that might require a visit to an AT&T retail store (and keep the same phone number).
Also, once activated, it is possible to use the iPhone as a Wi-Fi only device (keeping email, web, and iPod functionality in tact) without any SIM card. This can come in handy when someone just needs to use the iPhone as a mobile internet device without the cell phone capability (phone calls and SMS will not work).