Jailbreak and unlock. Apple does everything it can to prevent you from doing so, but that doesn't mean they're
successful.
Unlocking currently (to my knowledge) works on the Iphone 2G, 3G, and 3GS
running firmware 3.1.2 with the "old" bootrom. You must jailbreak first, using pwnage tool, redsn0w, blacksn0w, blackra1n, or other tools. I know of no 3.1.3 unlocker as yet, and the iPhone OS 3.2 will be shipping this fall if it hasn't already.
Why Jailbreak?
Jailbreaking will unlock your device so you can install 3rd party applications on it that are not available in Apple's iTunes store using an apps store called Cydia. Some of the popular applications people install once their phone is jailbroken is:
# MxTube - Download and save YouTube video on iPhone
# NemusSync - Sync iPhone calendar with Google Calendar
# iPhoneModem or PDANet - Let you use iPhone as modem and give your laptop connection to Internet via iPhone
# Mame4iPhone - Play arcade game on iPhone (this is the same MAME that runs on the PC)
# Voicemail Forwarder - Send voice mail messages to an e-mail destination
# Categories - Organize springboard apps into folders (Also will be available in the next iPhone OS)
# MiVTones Video ringtones - For that special someone, play the video of your choice along with audio
# V-Out - Display any iPhone content on your TV
# MCleaner - Caller ID blacklist screener
# Adblock - Blocks ads in Mobile Safari
# FindMyi - Tracks your iPhone location in the background
# iBluetooth - Bluetooth file transfer
# Winterboard - Add themes to your iDevice icons (including iNav, a desktop total conversion)
# Terminal - View the iDevice directory structure and issue *nix commands to the OS
# OpenSSH - Add and remove files on your iDevice without using iTunes, using a PC app such as WinSCP
# AV Player - Play media files you added via SSH
If you choose to jailbreak and unlock, please be very careful, do lots of research beforehand, and follow instructions
carefully. Failure to properly jailbreak/unlock can result in breaking the baseband of your phone; some devices require you to downgrade your firmware, back up your SHSH blobs, and so on.
It's work, but if you can accomplish the deed, it's worth it.