Many iPhone "2G"/first gen. hardware contracts are more than the approximately (maybe it's exactly?) 18 months it takes for your contract to be upgrade-eligible. The issue here is more the people who bought the iPhone first gen very late in it's life cycle, or bought into the 3G at all (since it's only been available for about 11 months.)
Seems people just feel confused and betrayed by Apple, because those who purchased iPhone 3G phones (myself included) adopted early, and also were first gen. customers as well. Many of the people in my situation feel screwed that they have to pay an upgrade fee while new adopters get in on the iPhone 3G-S goodness for free while we've been loyal customers all along. That said, I realize it doesn't really work that way.
I understand how subsidies work, and I realized that the iPhone 3G was released approximately 1 year after the iPhone "2G"/first gen., but maybe if I knew the iPhone would be updated again after only a year, I might not have purchased the iPhone 3G. Nevertheless, the iPhone 3G does suit my needs completely and will continue to do so until approximately January 2010 when I can upgrade to the iPhone 3G-S, or at that point, I could also just wait and see if the iPhone 4th gen is coming down the line at the one-year mark just like this one. And if so, I'll evaluate then if it's worth the additional 5 month wait.