Exactly -- I worked this out with my fiancee. She was about to buy a new iPhone anyways so we signed her up for a new plan and I paid for the phone. She gets my 16GB iPhone 3G when the new one comes in and I get the shiny new 32GB iPhone 3G S and only paid $299 for it.
On a side note, all you clowns complaining about $499 for an upgrade price, for some reason my account didn't even qualify for that upgrade -- they wanted $699 from me, claiming I wasn't eligible for upgrade pricing until Dec 2009. $322 and change later and I've got a shiny new iPhone 3G S. It's not impossible. One of my co-workers got AT&T to provide him the $299 upgrade pricing just by calling, complaining, and threatening to cancel and pay the ETF. They sent him over to 'customer retention', who asked why he was cancelling and when he told them they offered him the upgrade at the $299 price...
Of course, he started at $499 -- not $699. I figured since my account was already screwed for some reason, I'd leave it be. Plus, if in December they reset my contract entirely for some reason (as the site shows it will), I'll have a free upgrade just in time for the next upgrade next year :P.