I had similar experience last week Stew but better outcome? Been with O2 for 7 years - end of 18 month contract - local O2 shop wanted £100 to upgrade Xda Orbit to version 2; raise the monthly payment a fiver and an 18 month contract.
Checked out the rivals - Orange doing a reasonable deal on the HTC Touch Diamond - rang O2 told em I was looking at the Orange deal - the coal face spoke to the backroom and in two days I had a the new Orbit for free on my same monthly payment plan and just a 12 month contract. Saves messing about changing car phone holders/chargers and staying with O2 means I also continue to benefit from a £5.60 off the monthly payment described as "loyalty reward"
New Orbit, which has the HTC cube software, is a great improvement as is the the revised sat nav.