IPhone 3GS not recognising sim card????

I recently upgraded from an iPhone 3GS to an iPhone 4. As I had bought the phone from Orange I was able to keep it and had planned to give it to my daughter to use. Before handing the phone over to her, I deleted all the information on it. I can't remember how I did this, but it was built into the iPhone menu and left the phone, just as it was when I first bought it, asking for configuration, language settings, enable locations settings etc., The iPhone was working BRILLIANTLY before this and I had never ever experienced any problems with it at all.
My daughter is now the not so proud owner of my old 3GS, she can not use it. She has put her Orange Sim Card (contract) from her "old phone" into the 3GS and it is not saying "No Sim Card". I have also tried to connect this 3GS with iTunes and the iPhone emblem is visible in the menu on the left hand side of the screen, but when you click on this emblem it throws up a similar message saying the does not have a sim card in it (when I know it does because I put it in there).
I have spoken to the iPhone support at Orange who had me doing various things in trying out various Orange sim cards within the 3GS and it would not recognise any of them. The support guy got me to carry out a "software" reset (by pression the home button and on/off button at the same time), the sim card was still not recognised. His final words were, it's got to be the phone and you warranty has run out. He seems to think it is a software problem....
I had recently updated the IOS to 5.0.
Can anyone offer any explanation as to what may have gone wrong, has my old faithful 3GS just had enough or is it something that I could have done to "bugger it up".
All ideas or explanations appreciated.

So Melopez.........am I hearing you right???
If Apple have provided their customers with Software that, basically "buggers up their phones", what are they doing about it.
Surely we could be making some sort of claim against them.................I now have an iPhone 3GS that's only use is as a door stop, or maybe a paperweight (as a result of their so say, software bug). On the last occassion that I synced my 3GS I was informed that there was an update, so I updated it. There was nothing on this update saying "if you are the owner of a 3GS, IOS 5 is not compatible with this software, so our advice to you as a loyal customer of ours is do not update your phone as you won't be able to use it afterwards". Too much to ask for really!!

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IPhone 3GS not recognising sim card????

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