Let's say I go out and buy a Galaxy Nexus unlocked. I pay $600-700 for the phone. Then I walk into ATT and try to activate it. They'll activate it no problem. But they still want to lock me into a contract and they're still going to charge me $100 a month even though I brought my own device.
They can't lock you into a contract unless you get a phone from them. Even if they try to put you on contract, you can cancel that contract anytime and you don't have to pay early termination fees. The AT&T service rep you talked to was an idiot.
What bugs me is if I'm paying $100/month for service for a total of $2,400 for the life of contract while another customer pays the same rates but gets their phone for free. Another thing, if I buy my phone full price, AT&T would still force you to get a data plan even if you don't want or need one (e.g. if you've got easy wi-fi access). T-Mobile doesn't and their pay per use data rates is actually quite reasonable.
With current pricing and policies and limited choice of carriers due to coverage (for most folks, it's either Verizon or AT&T), the smart thing to do is get a high-end phone from the carrier and use it or buy a phone with high resale value and sell it to offset the cost of the unlocked device purchase.
Unfortunately, the carriers are afraid to change the status quo. They don't want to be considered a dumb pipe/utility. That's why in the US, most of the phones are full of carrier branding. That's also part of the reason why there are carrier exclusive phones. Instead of choosing carriers based on price and quality of service, people are choosing carriers based on the phones they carry.
Wasn't it mentioned somewhere that it takes AT&T 17 months to recoup the device subsidy for the iPhone? Frankly, I'd be happier if carriers give me that phone subsidy (Samsung said $200 industry standard for most manufacturers, around $300~400 for Apple) as a discount on my monthly service plan instead of getting a smartphone. It's less upfront cost for them.
@Omar Days
Nope, no contracts less than 2-years. Either you get a 2-year contract or you pay full price for your device and go month to month. Of course, even if you don't get a subsidized device or if you get a cheapie $20 feature phone, you still pay the same rates as others with heavily subsidized phones.