Cannot set up replacement iPhone with MobileMe

I have a paid MobileMe account (now extended to 6/30/12), and a few weeks ago, had my iPhone 3GS die on me.  Got an iPhone 4, and got the 3GS replaced under warranty, and gave it to my wife.
Tried to set up "Find My iPhone" last night on the replacement 3GS, and now I get a message saying that it found my account, but I can't set up a free MobileMe account.  (Went to settings/mail/add new account/ put in my MobileMe credentials, etc.)
I can't set up ANY mobileme syncing with this.  The message comes back immediately, and I'm unable to set anything.
What's the problem?  My old 3GS was still present under "Find My iPhone" yesterday, as well as my iPhone 4 and my iPad.  I deleted the 3GS from the web based MobileMe, and the message said as soon as it came back on, would be available again.
Why can't I set this up with my PAID MobileMe account?

I'm not attempting to set up a new "account" as in service. I'm trying to associate the 3GS with an existing account. "add new account" is the mail account on the iPhone - NOT the service for said account (gmail, yahoo, exchange, etc). 
I'm adding a "new" account to the iPhone.
"Settings/Mail, Contacts, Calendar/ADD ACCOUNT".   Won't let me associate it with the 3GS for existing MobileMe account.  I go thru the same process for Gmail, which doesn't create a "new account" back at the provider, or a new userid/account.
I'm simply using the terminology on the screens.

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