As of approximately a year ago, cell phone service providers started locking the sim card to the cell phone that it (sim card) was activated on for a period of 6 months. You can use a prepay sim on a smart phone, (ie: Iphone), however, the sim has to be brand new (never activated). The phone has to be unlocked or purchased without a plan ($200 vs. $600) and you have to call the service provider that the sim card is associated with and give them your smart phone's imei number in order to activate the card and use the phone. It seems like that would be a pain to do but really it isnt. Just buy a cheap prepaid phone from whichever network you want to use and get the sim out to use in your iphone. It works. This answer is proof. Im using my smart phone with a prepaid sim now.
I thought you could just take your sim card out of any phone and put it in any other phone. I took mine out of a non-smart phone and put it in an iPhone and had no problems except some of my contacts didn't transfer. I just did it manually.