I've done this with 2 old v1 iphones now, and it works great as a mobile video platform for my 4yr old son.
I just "converted" one after picking up the 3gs, and here's what I did...
1 - Leave old SIM card in the unit, and plug into PC/Mac, bring up iTunes, and do a RESET on the device, this wipes everything on it.
2 - When it powers back up, it will want you to activate it. Leave the old SIM card in, plug back into PC/Mac, and click the activate button. This brings the device live.
3 - Power off iPhone, remove SIM card, and power back up. It will bring up a message about no SIM card, tap OK, and you'll be fine. You can leave WiFi on, or off, your choice.
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