Well take, take into account what a 16GB iPhone 3GS costs, thats about £500 already, then 18 months of txt's, Internet and Calls if you were Pay as You Go...
Personally i don't think their would be much change, if any, if you went the other route.
I still wouldn't buy an iPhone however, even the old 8GB ones cost almost double what the similar iPod Touch costs and as far as i can see, they just don't have the phone, and in actual fact they do, as you can buy a Hands Free kit on them and use Skype...
iPod Touch = Great
iPhone = Con