According to UBS analyst Benjamin Reitzes who just met with Apple's CFO and other executives, iphone will be offered at the Apple store, but you will need to sign a contact with Cingular before the store give you the iphone. However, there will be a "innovative" way of activation right in the store.
By the way, the phone will be 499 and 599 "with" the contract. Many here think it will be cheaper because it's a new contract, but according to AT&T, the price will be the same. This is not a "subsidized" phone. The price will be the same for everybody.