Upgraded from 1st gen to 3G iPhone

i went to the apple store and bought a 3G iPhone last week. it took the place of my 1st generation iPhone. it works just swell.
but my first generation iPhone still connects to my iTunes and i can add movies i've rented from the iTMS. i can do everything with the old iPhone except make calls (no service). but it does connect to the home wireless network and it continues to get email and stuff like that. i don't believe it should still be synching with my iTunes account since i've replaced it. but never-the-less it's sort of like having an extra iTouch for my kids to play with and they can watch movies on it and not borrow my 3G. but i digress.
my 3G syncs with the same account and it receives phone calls and all of that just fine. but every time i plug it into my computer it acts as though i don't have MobileMe set up. i click on the Info tab of my iPhone in iTunes and it has a button to set up MobileMe. i don't understand why. my MobileMe is turned on . . . and i get new email pushed to my new 3G iPhone. it's clearly working and clearly connected to my account. yet, every time i plug it in it wants me to set it all up again. i've set it up twice and i just checked all settings and everything is just as the directions indicate, yet i can't get the "Set Up Now" button to go away -- and the button just takes me to Apple's website to a tutorial anyway.
does this have something to do with my old iPhone still working? was the Apple Store supposed to take my SIM card from my old iPhone and put it into my new one? they didn't, fwiw.

okay, this was too difficult for the masses visiting here. it was too difficult for me to figure out as well.
Plan B -- if i want to start over, do i reinstall iTunes? do i reset my iPhone? do i switch the SIM card from the old iPhone to the new 3G? my 3G currently just gets stuck syncing contacts. if i turn contacts syncing off then it'll get stuck syncing calendars. if that get unchecked then it'll get stuck syncing mail stuff . . .and then bookmarks, etc. if i turn off contacts, calendars, mail, and bookmarks then the sync happens just fine with music and ringtones and other stuff.

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