Heya Vix.
Do you currently have a contract phone, or pay as you go? You could find a great deal if you are on contract to get an iPhone for free by signing up to an 18 month contract?
The 3Gs is currently free on O2 for any of their tariffs when signing up to any of their contract lengths.
Money saving expert have a very cool tool for checking the latest deals:
http://www.moneysavingexpert.com/deals/cheap-iphone#contract
Put in there what size/model iPhone you fancy and it will cough out the latest prices.
The iPod is a very good option - but you miss out on all the telephony/mobile data access.
As for your wifi question - yep - using your home wifi is unlimited. Depending on the network you go with, some have their data plans that include access to certain types of public wifi networks whilst you are out and about. O2 have perhaps the biggest - The Cloud, but I seem to remember that this may be coming to an end...
Edit - yep confirmed - cloud access for O2 is no longer free, but BT Openzone still is.
You basically get an iPhone tariff - which includes a data plan (access to the internet via mobile network) which has a cap on it. I have the 500mb package and despite best efforts rarely go over it. If you do go over, they limit your data speeds.