When I get a new phone this year my original 8 GB iPhone will probably be worth $100. I'll probably give it go my three year old daughter.
However, it will won't have phone service, it will basically be a touch with speaker. She'll have it for listening to music, and probably a few apps. She already spends hours listening to the Jackson 5, Diana Ross, temptations, sam and Dave, etc. This way she won't have to use mommy and daddy's newer, more expensive phones.
And she won't really have free reign of it. We'll control when and how she uses it. She watches zero tv, so I think music and photos on the iPhone are ok entertainment.