I AM an iphone user and I AM tied into an 18 month contract (with o2) at the moment. However, I wouldn't expect them to do me any favours when it comes to upgrading. I got the phone for "free" so obviously they have to recoup the cost (and make a profit) by me paying a monthly fee for the duration of the contract - as with EVERY PHONE I'VE OWNED! Anyone who expects either of these companies to give them special treatment is a misguided fool.
To be honest, OS 3.0 brings the features I wanted anyway so I wouldn't bother upgrading to an "S" if any exchange of cash was involved. My girlfriends contract runs out next month and she was after an iphone - although it's essentially £99 extra for video recording (why bother? we have a proper camera for that), voice control (she just tells me to do it for her instead) and internet tethering, which we have no use for at all.
While I can see that some people might view those features as more useful than I do, and may choose the "S" on a new contract, I can't see any reason why anybody but a real fanboy would bother upgrading from the 3G to the "S".