Wanting to use old iphone 2G as an itouch

I am trying to covert my old 2G iphone to an itouch. (I have a new 3Gs) I was told I could do this. When I plug it in to itunes I can add things to the phone but my phone still shows the plug into itunes screen and says slide for emergency. How do I get it to work as and itouch? It also fails to back up everytime.

I have an original iPhone that a friend gave me after upgrading to a new 3G-S. The SIM is identical to the one in my own original iPhone, and it still has my friend's phone number associated with it, so I am pretty sure it's the original SIM.
I've got the directions from Apple's Support page here:
1. Reinsert the SIM card used when the original iPhone was activated and had a valid wireless service account/tariff.
2. Connect the original iPhone to iTunes on a computer connected to the Internet.
If that SIM was previously valid and used with that original iPhone, iTunes will re-activate the iPhone, but without any cellular service.
Only that's not what happens.
When I connect it to my iMac in iTunes, I get a screen inviting me to activate it with AT&T, or cancel. There are no other options. There's no way presented to synch the phone with iTunes. If I cancel, the screen simply takes away all options and says "Activation Cancelled. You may now disconnect your iPhone."
If I proceed with the AT&T activation screens, it asks me to choose a rate plan and such, and of course I don't want to run through to the end of that and risk creating a new cellular account that AT&T would then demand my first born child in order to cancel.
Am I supposed to run through the entire AT&T activation and then choose to opt out at the very end? It seems the Apple Support page would indicate that if it were the case. Is there a step I'm missing? I'm stumped.

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