I have removed the sim card and used the iphone as an ipod. One of the first things I tried. Wifi worked the first time I tried it at home, but not at a friends house. I haven't tried again, but will when I get off work.
If your contract expires your plan just continues on a month to month basis. I know people that have been on a month to month for over a year now.

Sorry should have read the article first. If your on prepay and they cannot bill you, the service is suspended.