Why yes, yes it was. Mine still works, and is currently playing BBC Radio 4 in the other room. I think I will go get it unlocked.
This is great news from AT&T, but kind of exasperating, since I splashed out $702 for an unlocked iPhone 4S exactly so I could didn't have to pay vastly more money to end up with an iPod Touch / paperweight at the end of a 2-year contract.
I imagine that this scenario, plus the fact that other carriers will do an unlock 'for overseas' (nudge-nudge wink-wink) has driven AT&T into recognizing that they will lose many many customers, unless they start unlocking.
kind of... It was 'with contract' in that you had to bring it home and activate it with ATT. There were no other options. As far as I know, Apple wasn't paying any subsidies to ATT at that time. That was part of how they could drop the price a few months later.
I believe it was only after the next model came out that they started paying subsidies to ATT. That was how they got the price to 299 and 199.
Wasn't the original iPhone (at release) $600 with contract?