Someone tell me what to do

My contract with o2 is due for upgrade at the end of August, but I would love to get an iphone now, had an ipod touch for a while and really getting along with it after the initial tricky period
I'm on an o2 Tariff, due to upgrade August 28th, currently paying £30/month for 600 mins, 1000 texts, unlimited data.
I want to get an iphone, and yeah, this week, just because i've resited long enough, I have 3 options:
Upgrade to an iphone 3g/3gs both will cost the same roughly, £320, but that will be £140 to pay off the 4 billing dates remaining on my contract, and £180 for the 16gb 3gs on £35/mo tariff. Downside being that I'll have to cancel my contract, move my number to a PAYG sim, then onto the other new account sim, wasting about a week or 2 with no number or my number in limbo!
Buy an iphone 3g on PAYG, use it for afew months on 3.0 and see how I go with it, when upgrade time comes, maybe upgrade to a 3gs and sell the 3g on the bay (My favourite idea at the minute)
As above, but buy a 3gs this week on PAYG and upgrade to another if I get along with it, selling one of them.
If I bought a 3g/3gs now, would I be able to use it straight out of the box with my o2 account? I've currently got an N95 8GB that I've had since last March, would there be any obstacle sstopping me from getting the most from the iphone straight out of the box?
Last idea, buy a 3g/3gs on PAYG, if I enjoy it and feel like doing so, move down to simplicity for a while if I can port my number, and then take out a new contract next time I feel like a new phone.
Cheers
