So what did I learn with my adventures activating my iPhone? First of all, there is no problem with you walking into an AT&T store an signing up for a new service plan with the original G2 GMS iPhone. Secondly, you can use a pre-paid AT&T GoPhone SIM card in your iPhone. To use a pre-paid card, you will need to purchase and activate the pre-paid SIM card in a phone and then move it into the iPhone once it is setup and then activate the iPhone in iTunes as an existing customer. The CellFanatic blog has a good run down of how to do this.
But what if you are like me and don't want to have to deal with another monthly cell phone bill and just use the iPhone as a glorified iPod touch (with a camera), then you may want to go with the slightly shady jail breaking route. My SIM card was disabled because I hadn't used it in 6 months or more and I wasn't planning on throwing $15-30 away on a new one just to activate the iPhone. I used the Blackra1n jail breaking utility to by pass the activation process and make the phone available in iTunes. I did end up putting my "dead" AT&T SIM card into the iPhone to keep it from constantly reminding me that there was no card inserted.
The good news is that everything, minus the Phone and Messages applications, are working normally. If I change my mind, and want to activate the voice and SMS text messaging features, all I need to do is to put in a new, activated 3G AT&T SIM card and I'm ready to rock 'n roll.