This is not a personal dig at you, but it's definitely a dig at O2. I bought the new iphone 3GS on PAYG from O2... my intention was to use my own sim card in it all along, but when I realised I got unlimited web AND wifi hotspots free for a year, I thought to hell with it, i'll use O2. Their 2G coverage in areas where I live / work is excellent, and despite having notoriously bad 3G coverage, most areas I visted were actually covered by a full 3.5G signal... I was delighted.

A few days in to ownership, I was having troubles connecting to the web. Signal was strong, settings were correct, I started to doubt my iphone. I turned it on / off, did factory resets and restores but still no joy with internet. I called O2 to ask if there was a problem... must be the phone they said so I took it back to them for them to see. Wouldn't you just believe it, the internet worked when I took it back to the shop!!

A few days pass and the problem returns, I turn to the internet in an attempt to find a solution, I then become overwhelmed at how many people around the whole country suffering the same problem.

I had only just "joined" O2, so I just thought, oh well, a temporary problem, everything will be alright.... I was wrong, this problem seemed to become worse and worse. I ditched O2 and since using another network I have had zero problems connecting to the net.
Visit the O2 forum. this problem is still happening every few days. It's a joke. Thousands, probably even millions of very unhappy O2 iphone customers at the minute.

The thing I find most laughable in your above post is where you say "it carries the iphone so you can imagine it is quite beefed up"

lol - it should read "it carries the iphone, so dont expect to be able to use the data network when you need it most" I think that where other networks spend money on their coverage and capacity, O2 spent theirs on getting the iphone exclusive... bad move IMO.

As far as tethering goes, sure you can do it, but to do it with O2's consent will cost you (I cant remember if its £15 or £20) a month for the bolt on. There are ways around paying, but if O2 suspect you are doing it without paying, they will either charge you or cut you off. They dont like you doing it because their network is already far too overloaded