Using an iPhone as an iPod touch

Ok this post is a legal thing to do with your iPhone once you're unable to use it as a phone (again, legally). So in case you have an iPhone in the US and move to another country where it cannot be used as in the US, then you can at least use it as an iPod touch rather than giving it to the baby to play around as a toy (well since i dont have an iPhone, i feel the freedom to write silly things like this ;) ).
So here's how you can do this.
(from apple.com/support)

To continue using your original iPhone without active cellular service, leave the inactive SIM card in place. You will be able to use the iPhone as you would an iPod touch (Wi-Fi only, no cellular service) as long as you keep the SIM with which it was last used, even if you update or restore the operating system of the original iPhone.

Activation for an original iPhone requires that its SIM card stays with that iPhone. If the original iPhone displays the "Connect to iTunes" screen, you can use that SIM card to re-activate the iPhone, regardless of whether that SIM has a wireless service account/tariff still associated with it.

To re-activate an original iPhone that displays the "Connect to iTunes" screen:

Reinsert the SIM card used when the original iPhone was activated and had a valid wireless service account/tariff.
Connect the original iPhone to iTunes on a computer connected to the Internet.
If that SIM was previously valid and used with that original iPhone, iTunes will re-activate the iPhone, but without any cellular service.

Additional Information

If you no longer have the SIM that was used with the original iPhone, and the original iPhone displays the "Connect To iTunes" screen, contact your carrier to get a replacement SIM.
If you don't already have a wireless service account/tariff with that carrier, iTunes will help you create one.

For iPhone 3g/3gs :
You can use any SIM card associated with the carrier that your device supports to activate the phone. Simply place a SIM card from the last carrier with which you used your iPhone into the device, and activate it. Then remove the SIM card. You can now use the iPhone 3G or iPhone 3GS as you would an iPod touch (Wi-Fi only, no cellular service).

Note: You can use the activated SIM card from your new iPhone to do this.

To re-activate an iPhone 3G or iPhone 3GS that displays the "Connect to iTunes" screen:

Insert a SIM card from the carrier with which you used your phone. Note: If you are using the same carrier, you can use the activated SIM card from your new device to do this. If your device is unlocked by your carrier, you can use any SIM card.
Connect the iPhone 3G or iPhone 3GS to iTunes on a computer connected to the Internet.
iTunes will then activate the device. You can remove the SIM card at this point and use the iPhone as if it were an iPod touch.

[For iPhone 4 :

Now i just learnt that the iPhone 4 has a microsim inside it, which cannot be replaced or removed from the iPhone. So i will post the details on this when i get the info on how to go about iPodding your iPhone 4.]

For a different look of the above information you can check the following link : http://support.apple.com/kb/HT3406

Cheers! happy ipodding.