Using iPhone as an iPod (not activated)

I am planning on selling my iPhone to a friend that doesn't have att. I am selling my iphone to get the new 3g iPhone. since my friend doesn't have att he was going to use it as an ipod after i remove my sim card. I'm wondering if he will be able to use it fully on iTunes.

He should be able to use it as a Touch but he will not be able to download updates.

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