Thanks Meg. I managed to borrow an AT&T sim card and tried to use it to do this. I got the same errors. iTunes says "There is no SIM card installed in the IPhone you are attempting to activate."
The IPhone says "Your IPhone could not be activated because the activation server is temporarily unavailable. Try connecting your iPhone to iTunes to activate it, or try again in a couple of minutes."
I looked around on another thread and it said to rename the iPhone to "iPod"- I did that on another old one and it worked great. But it was a 4 and had 16 GB storage, this one is a 3 and has 32GB. Then another thread said I needed to restore the iPhone to original settings and it would then be able to set it up new from scratch-which I did and still no luck.
Yet another thread said that my iTunes or Mac would have to be fully updated, and I haven't updated to Mavericks yet, I am running Lion, and iTunes is fully up to date.
Any ideas?