To be clear, new customers or existing customers who are eligible for the full upgrade discount can get an iPhone for $99(8GB 3G)/$199(16GB 3G)/$299(32GB 3GS). They are committing to 2 years of service with AT&T.
Existing customers who are ineligible for the full upgrade discount (typically because they'd already received an earlier subsidized phone, and not enough time had passed to become eligible for another) can get an iPhone at a reduced "early upgrade" price of $299(8GB 3G)/$399(16GB 3G)/$499(32GB 3GS). They are also committing to 2 years of service with AT&T.
Qualified customers can purchase the iPhone outright (no-commitment) for the unsubsidized price of $499(8GB 3G)/$599(16GB 3G)/$699(32GB 3G). They are not incurring any additional contract extension. (Obviously, though, if they were already AT&T customers before the purchase, then their existing contract, if any, will still be in force until its original term is up.) The phone will still only work with AT&T SIM cards though.
A "qualified customer" for the third option would probably have to go to a retail store and purchase the phone in person, because it's only supposed to be available for existing AT&T customers (who, for whatever reason, don't want to extend their contract) or for people who are buying the iPhone as a gift for somebody else.