I signed up for the current 3G iPhone the other day, 8gb on the 24 month contract so he phone is free
If a new iPhone is announced it will be at the WWDC in June, if it's anything like the 3G it'll be September time before it hits the shelves. Also if it's anything like the 3G one, O2 will do an upgrade of sorts.
Plenty of rumors going around, nothing definite at all but i'd imagine a new iPhone would bring more capacity, better camera with video support, better battery life and probably quicker CPU/GFX bits.
Also heard a rumor about front camera for video calling and HSDPA for quicker 3G access, however unless AT&T pull their finger out to upgrade their network it won't be much of a benefit to them.