I am considering an iPhone for my daughter (rather than an iTouch) mainly because it has all the features of the iTouch but also has a camera, which I know she'll enjoy. She's too young for a phone, so we wouldn't need to activate a phone plan.

I'm wondering if all of the iPhone features (internet via WiFi, IM, music, video, etc) will work if we do not activate the phone via AT&T or another carrier. I'd expect all the features except Phone to work as I presume they do on the iTouch.

Any insight is appreciated.