Strong, though as yet unconfirmed, industry rumours claim that O2 will reduce the cost of the 3G iPhone come May. It's likely the 8GB model will be offered free on the most popular £34.26/month package (it's currently only free on a £44.05 or £73.41/month tariff), and the 16GB model will be free on the £44.05/month package (currently £57.74 on a £44.05/month tariff).
Its almost certain Apple's set to release a new and improved iPhone this summer. As ever when it comes to the super-secret company, there's no official release date, but if previous years are anything to go by, mid-July seems a decent bet.
There's also speculation that O2 will lose the exclusive rights to sell the next iPhone, with Orange said to be vying for the lucrative contract. Again, though, this is only a rumour at this point.