No "none" payment option when setting up Apple ID

If you only want the free iPhone apps, take a look here:

http://support.apple.com/kb/HT2534

Read the steps carefully as the order in which you follow them is apparently critical.

Hope this helps.

I filed a bug report with Apple. iTunes will not display the "none" payment option for already subscribed users.

iTunes will not display the "none" payment option for already subscribed users

You mean if you already have an Apple ID.
It's not a bug. You need to create an iTunes account separate from your Apple ID.

When clicking on "sign in" in iTunes the pop up states "If you have an Apple Account (from the iTunes Store or MobileMe, for example enter your Apple ID and password". Each user already has their own individual MobileMe account so that is their Apple ID. It makes no sense to create another account for each user when they already have one registered with Apple which I'm paying for annually.

Okay. You need to "activate" your MobileMe account as your iTunes ID.
A CC needs to be entered to verify your country of residence (for copyright issues).
You can immediately remove your CC info after you complete the registration.

I can get "none" as a payment option to display if I change all credit information to my own for each user but I get the same error as before in iTunes on the Mac and on both iPhone "Your request is temporarily unable to be processed. Please try again later". iTunes Support emailed me back today asking me to redirect the issue to MobileMe Support as the Support rep believes it's a MobileMe issue and not an issue with iTunes 10.1.1. I'm still waiting to hear back from that department. As it is now neither user will be able to download anything from iTunes desktop application or from their iPhones. While I can sign in with my main MobileMe account I can't even gift apps to the two users since their MobileMe address has to be first recognized by iTunes.