Ok, to clarify it for people who don't understand this.
Once you get a new phone from the AT&T store, in this case the iPhone 4, at the discounted rate you see ($199 or $299- assuming it's an iPhone 4) that's what you'll pay for your upgrade. This means, you have used your upgrade and you can't use it again until you are next eligible (probably a year or two from now) if you buy the phone.
In this case, the OP has used his upgrade in order to get the iPhone 4 at $199 (16GB) because HE paid for it at AT&T, he is the ORIGINAL BUYER. It DOES NOT MATTER if you keep it in the box, untouched, and never turned on, and then go sell it to someone else to make some "fat cash".
Now that you've done your little business deal, and made a chunk of change that should be the end of it until next year- when you're again eligible for an upgrade, going back to get the phone you sold for cash is pointless because you've already used your upgrade and the price for an early upgrade is out of the roof ($299 for 16GB $399 for 32GB- someone check me on that).
If that isn't clear enough...
God help us
Edit: And technically you have used the upgrade. What they mean by "upgrade" is get a new phone at a discounted rate. In this case you did, you just ended up selling it earlier than most do. Just because you aren't using an upgraded phone doesn't mean you haven't used your upgrade. Hell, someone can go from a 3GS to a new flip phone and that would still be considered an upgrade.