Switching old iphone and new iphone SIMs?

Does anyone know if switching the SIM from the old iphone to the 3g iphone, and vice versa, will work? Is it even legal? I have a particular issue... I got the 1st gen iphone in January when I switched to AT&T, but my wife got a regular phone. Now she wants the 3g phone, but she isn't eligible for an upgrade so it'll cost $400 instead of $200. I can still upgrade for $200 though. So the option i'm considering is upgrading my phone, using the old iphone to load her phone number on it, and then switch the 2 sims so that she keeps her number and the 3g, and i keep the 1st gen with my number. If i don't switch sims, I could just switch phones (and hence, phone numbers). Any thoughts?

This cannot be done with a carrier locked iPhone.
You can use another AT&T carrier locked phone or an unlocked GSM phone with you iPhone's SIM card but you cannot use the SIM card from another phone with your iPhone.
The SIM card activated with an iPhone is married to the iPhone's IMEI number via the activation process with AT&T. For your wife to use her line/number with an iPhone 3G after you have activated the iPhone with your line/number will require your wife activating the iPhone with her line/number via the iTunes activation process.
This ain't AT&T's first rodeo with people trying to do the same in regards to trying to get around a subsidy early. You qualify for upgrade or subsidized pricing on an iPhone 3G with your line/number, but your wife's line/number does not qualify for upgrade or subsidized pricing for a new phone.
Better to be upfront and ask AT&T. They may be willing to work with you on this making an exception.

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