New iPhone will not connect to iTunes Store. Not able to activate

I bought my iPhone 3 weeks ago from an AT&T store and use it everyday. It works fine. I bought one for my wife 2 days ago from the same AT&T store and it does not work. After spending 2 + hours on the phone with Apple level 1 and 2 support, the final diagnosis is a bad sim card. (Apple phone support was very good and very professional) They are in process of sending me a box to mail the iPhone in for service and I am confidant they will fix the problem. I am disappointed, however, the iPhone did not work out of the box and I now have to wait for service on a brand new iPhone.
Has anyone experienced the following problem?
When connected to iTunes, the iPhone is not able to connect to the iTunes store and I receive the following error message, "We could not complete your iTunes request. The network connection timed out. Make sure your network settings are correct and your network connection is active." I was not able to activate it.
The iPhone screen itself shows the iTunes logo and the sync connector. iTunes does not give me the ability to activate the phone nor make any changes to it. iPhone shows up in the device listing, but that is it. There are no settings in iTunes for making changes or setting up the new phone.
When I plug my iPhone into the computer, everything works fine. The new iPhone does not. I tried everything Apple recommended including: Resetting the phone and deleting / reinstalling iTunes, but nothing worked. So, here I am waiting for service on a brand new iPhone that I have paid for and am paying for monthly service, but cannot use. Kind of stinks...
Anyone have a similar problem?

2 things
one they will overnight you the box and give you a overnight box to send to them (fedex)
two call them back they will also overnight you a free iPhone loaner for the next few days if you ask

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Thanks for visiting Apple Support Communities.
If you're not able to connect to the iTunes Store, try these steps first:
Troubleshoot issues on an iPhone, iPad, or iPod touch
If you haven't been able to connect to the iTunes Store:
Make sure your date, time, and time zone are correct in Settings > General > Date & Time.
Note: Time Zone may list another city in your time zone.
Make sure that your iOS software is up to date by tapping Settings > General > Software Update (iOS 5 or later) or connecting your iOS device to iTunes and clicking Check for Update on your device's Summary page.
Check and verify that you're in range of a Wi-Fi router or base station. If you're on a device with cellular service, make sure that cellular data is turned on from Settings > General > Cellular.
Note: If connected to cellular data, larger items may not download. You may need to connect to Wi-Fi to download apps, videos, and podcasts.
Make sure that you have an active Internet connection. You can check the user guide for your device for help with connecting to the Internet.
Make sure that other devices (portable computers, for example) are able to connect to the Wi-Fi network and access the Internet.
Try resetting (turning off and then on again) your Wi-Fi router.
If the issue persists, try troubleshooting your Wi-Fi networks and connections.
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http://support.apple.com/kb/ts1368
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New iPhone will not connect to iTunes Store. Not able to activate

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