I purchased the phone (and, yes, the 2 year contract) from the apple store. I don't plan on leaving AT&T any time soon so I renewing my contract wasn't a big deal.
If you have a 2G or 3G iphone and don't mind renewing your contract with AT&T for another 2 years, then go here to see if you qualify for an upgrade:
http://www.apple.com/iphone/buy
If you qualify, then immediately put your current phone on ebay. My brother sold his 2G 8GB phone for 170. My 2G 16GB went for 280. And, it looks like the 3G phones are going upwards to 400.
It's a nice little flip.