I have an iphone 2g unlocked and use in my area where only tmobile happens to be my option of carrier, No ATT here in my area , Here is my dilema , I was wondering a few things....
1) is it worth and why for me to upgrade to a 3g, or 3gs given the fact I cannot use the 3g, it doesnt work with tmobile as i understand...???

2) Can an iphone such as mine be used in a manner as an ipod touch but with camera and mic but with no cell service( I have a friend who would buy my 2g from me but he doesnt want the phone just the other features like an ipod but with mic and camera)
thanks for you input

Yes of course the old 2G model can be used in this way. You must hacktivate it with redsn0w or pwnagetool but then it can easily be used as a glorified iPod touch with wifi. I think you do need a sim card inserted during hacktivation but you can always take it afterwards

1. It's actually all personal preference if you want the 3G or 3GS. The benefits would be a faster OS and arguably a cooler new look. The downsides are that you can't use 3G, which is kind of a waste. The 2G has also been "permanently" unlocked, so you won't have to deal with yellow/ultrasn0ws of any kind and be a couple firmware versions behind.

2. Yes. Restore to either a custom ipsw (via PwnageTool) or jailbreak with redsn0w. Either option is fine. You won't really need the SIM card.