As most predicted - you can simply buy the new 16GB iphone and use your exisiting sim with it - personally I won't be bothering as I am not really using the full 8GB TBH , but it is nice to know in case the 3G iphone stays on o2
But what I found interesting , was that o2 will happily supply a new sim for your iphone , which the new owner ( should you sell it ) can register and activate via itunes in the same way as you do when you buy it new - (OK so it would be better to unlock it - but hey ho ! )
But the point is , the handset can legitimately be sold and used with its feature-set intact , which is nice
But then I suppose something like this was necessary - otherwise once your contract is ended , you iphone would become a brick - it woud be nice to see OFCOM force o2's hand in this regard (WRT unlocking) but I doubt this will happen
O2 have certainly made it easy for existing customers to update to the 16GB iPhone here. It is nice to see them making it so very convenient - especially with helpful advice re The Cloud. I suppose it is all okay unless you have to speak with their off-shore call centre.
I'm skipping this "point release" of the iPhone - as you rightly say, 8GB is quite enough. I won't be ready to update until 3G, MMS and a [much] better camera. I'm not terribly worried about the built-in apps as they are perfect for me. The imminent release of the SDK will take care of everything else. This is one phone that will not be ignored by developers.
If sufficient people complain to OFCOM they will take an action. The threshold is around 16 similar complaints before they consider making it an internal case. Following that if a few more arrive they'll take it further.