The original iPhone wasn't carrier subsidized - you could walk into the store and buy one, without a contract. You'd set up the contract when you got home, through iTunes.

It was locked to Cingular/AT&T, but that was, as the other commenter said, more of a Visual VM thing than anything else.

I'm thinking this started because Apple wanted to change the way phones were sold, but changed because selling a $599 (or $399 after the price drop) phone wasn't tenable in the US market.