Try buying one on PAYG
Try this simple test.
Go into any CarphoneWarehouse or O2 store and ask to buy an iPhone 3GS on PAYG.
They will tell you that it is currently out of stock and it may be several weeks before they get stock - or some similar statement, they'll also tell you that they DO have it in stcok on Contract SIMS.
Now, do you know what the difference is between a PAYG sim and a Contract SIM? Nothing.
It's the same phone, the same box, the only difference is the box they tick for activation.
O2 and CPW simply do no wish to sell the phone on PAYG, therefore they must be making more money from Contract than from PAYG phones. So much more, that they would rather loose the £440 sale than sell the phone to a PAYG customer, and then keep the phone in stock until a contract customer comes along.