Sadly it seems that the Pay as you Go option won't be available until much later this year.
By the time I realised that O2 were selling the iPhone their ordering system was down. By the time I realised that it was back up again they had sold out of the 16GB version.
But Carphone Warehouse have the 16GB version and have accepted my order. I went via QuidCo and it's already tracked at £60 cashback. (Nb. They're out of stock now).
Update: Now QuidCo shows this transaction as "declined". Hmm.
I chose the £30/month package which includes unlimited data and 75 mins + 125 texts per month which is way more than I currently use.
So for 18 months it'll cost £159 + 18*£30 - £60 = £639.
The iPhone hardware must be worth about £360 (that's what it looked like O2 would charge for it), which seems fair based on a 16GB iTouch costing £230 and the iPhone has GPS, telephony and always on data.
The unlimited data is worth about £180 (maybe less, but about that amount).
Getting £200 worth of the phone in advance and paying in installments must be worth something, say £40.
So that means that the minutes and texts are costing about £3.27/month (or £6.61 if the QuidCo doesn't come through).
Seems pretty good to me.