Looks like like news24 has its story wrong as well.
"Apple will sell iPhone 3G models in the United States for $199 and $299, depending on memory capacity. The original eight-gigabyte iPhone was priced at $600 when it debuted in June last year."
http://www.apple.com/iphone/
Look at the conditions next to the first asterisk.
" * Comparisons between iPhone 3G (8GB) and first-generation iPhone (8GB) running on EDGE. Actual speeds vary by site conditions. Requires new two-year AT&T rate plan, sold separately to qualified customers."
$199 is how much you'll have to pay in when you take out the contract. The IPhone 3G will probably work out more expensive if you have to include the monthly payments for the contract.