Anyway to activate old 2G iPhone with dummy SIM card?

You're welcome.

If you use one of the dummy SIM cards to re-activate your first generation iPhone temporarily with your existing line/number, your 3G will no longer be activated while your first generation iPhone is re-activated temporarily. This must be followed by re-activating your 3G which will deactivate your first generation iPhone again followed by leaving the no longer activated SIM card inserted in your first generation iPhone in order to install a firmware update or restore the iPhone with iTunes if wanted or needed, and use the first generation iPhone as an iPod Touch.

The only thing that will change with this process temporarily is your data plan rate - $20/mo for the first generation iPhone, and $30/mo for the 3G.

You may want to do this at the same AT&T store so there won't be any problems with your account quickly switching from one data plan rate to another and back again.

Thanks for the reply Allan, but, in fact, I did read all your posts and I do understand them. I am sincerely happy for all of you whose experience matches the stated expectations. There is, however, no getting around the truth, not borne out by logic but rather by experience. You have had an experience which supports your statements, so I am not arguing with them. For me, I have had a different experience, which is undeniable, because it happened. I am not posting to argue, but to warn of a different possible outcome. Hopefully, most people in our situation will have your experience, not mine.
Your experience is the expected one, according to Apple's document:
http://support.apple.com/kb/HT3406
which clearly states "If the original iPhone displays the "Connect to iTunes" screen, you can use that SIM card to re-activate your original iPhone, regardless of whether that SIM has a wireless service account/tariff still associated with it."
To be clear: I still have the original sim card, the one that was in the phone when it was used as a phone; it was never used to activate any other phone. Contrary to Apple's document and your suggestion and experience, when I connect my iPhone, now updated to OS3 as described in my previous post, to iTunes, all I can get to is the "Welcome to your new iPhone" page. Whether the sim card is installed or not.
So, instead of dismissing my experience as impossible, which is an inappropriate denial of observable truth, we should publish it as a warning of how not to update to 3.0 (however I did it) with a de-activated phone. A little hazy on exactly what I did, but really there are only two possibilities: When I allowed it to be updated to 3.0 by iTunes the SIM card was not in the phone, or it was in the phone. I think that the former was the case. In any case, I never experienced any errors or hiccups, just the unintentional bricking brought about by the update. If my guess is true, a very important part of Allan's suggestion is "As long as the no longer activated SIM card remains inserted in the iPhone..." Perhaps just taking it out before an update is enough to break the chain. (I wish) I should be forgiven for taking it out, because that is what I did to make it stop asking me to activate it when it was running OS 2.
Notes:
1)Before I updated to OS3, the iPhone, SIM safely tucked in a drawer, was working just like a Touch plus camera and mic.
2)Now, when there is no sim card in my iPhone, it complains "Insert a valid SIM card..."
3)Now, when there is the original sim card in my iPhone, when it connects to iTunes it asks to be activated.
4)The phone was never jailbroken nor hacked; it was just used normally, by one customer, a relative of mine.

OK, there is one part of Allan's post (and Apple's doc) with which I cannot agree is universally true, because it doesn't hold true for me:

Allan Sampson wrote:
What happened to the SIM card you removed from the iPhone? If this SIM card was not used to activate another AT&T phone and you still have the SIM card, insert the SIM card back in the iPhone and you will be able to install firmware update 3.0 or complete the process, and restore the iPhone with iTunes if wanted or needed without having to activate the iPhone with AT&T.
I spelled this out very clearly with my previous posts in this thread.

Yes, it's spelled out very clearly now.

Found where to download iTunes 7.7 from Apple:
http://www.apple.com/downloads/macosx/apple/ipod_itunes/itunes771.html
Ha ha, when I plug my (3.0, but de-activated) iPhone into a computer running iTunes 7.71, iTunes announces that this iPhone only connects with iTunes 8.2.
Nix that option.

Unfortunately no, not using conventional means.

Which begs the question = if I bought the 2G full price (no subsidies) and now have a 3GS, what really is the reasoning in preventing me from using my 2G as an iPod? So I basically have two options - sell the 2G or turn to the seedy underworld of hacking. Doesn't seem right.

I use my no longer activated first generation iPhone as an iPod Touch on occasion. In order to install a firmware update or restore a no longer activated iPhone with iTunes if wanted or needed, you need to have the no longer activated SIM card inserted in the iPhone - the SIM card that was used with the iPhone when the iPhone was activated.

That assumes that I stayed with AT&T. This is more of a personal gripe than a technical issue for me. 🙂 If I paid full price for the iPhone, I don't see why continued AT&T service is needed for me to use it as an iTouch. Also if I cancel my service, I pay a cancellation fee, and I still have an iBrick. This is the kind of thing that makes Congress pass laws.... 😉

I didn't know about the SIM method though. I used Google and less reputable methods to achieve my goal to use my 2G as an iTouch. Next step is putting up on eBay and letting someone else worry about it. 🙂

The 3G shipped with a new SIM card pre-installed, and there is no benefit using the SIM card from a first generation iPhone to activate the 3G.

The reason this does not work is because the SIM card used with the 3G is activated with the 3G. The SIM card used to activate an iPhone is "married" to the iPhone's IMEI number.

You can use that SIM card to re-activate your first generation iPhone followed by re-activating your 3G with the new SIM card that shipped with the 3G. Leave the no longer activated SIM card in your first generation iPhone in order to install a firmware update or restore the iPhone with iTunes if wanted or needed.

It doesn't need to be the "original" SIM card used to activate your first generation iPhone.

At this point, you need to re-activate your first generation iPhone with a SIM card that can remain inserted in the iPhone after it is no longer activated in order to install a firmware update or restore the iPhone with iTunes if wanted or needed, and use the iPhone as an iPod Touch.