While this is true, most people don't realise it. I often hear people saying they have a free upgrade to use, but haven't got around to it so may get something for a child. Or even get something free and sell it on Ebay... nuts I know!

If you're paying for the same plan regardless of whether you upgrade, then it is nuts not to get a free upgrade.

Yes, but you're not paying $400 upfront. Psychology is important.

Sort of true - if you are on a plan, and you are going to have to pay the same amount regardless of whether you get a free phone, then the phone effectively is "no extra charge."

I agree with you - people should differentiate between "free" (as in air, I don't have to pay anything and I can have as much as I want) versus "no extra charge" (as in, I have to pay a bunch of money for something, but then can get (usually 1) of something without paying any more.