An easier way for non-hijacked phones is to go to the Info tab in iTunes. Change the "Sync Contacts with" option to something else that has no contacts in it. I orginally had sync'd to MS Outlook. I choose Windows Address book. I also hit the "Reset Sync History" button in the Devices tab of iTunes Preferences (Edit menu) but I am not sure if that is needed.
I sync'd once ... and that copied all my iPhone contacts into the empty Windows Address book. Then I deleted all the contacts in the Windows Address book and resync's .... Voila! No contracts in the iPhone!!!

Peter