Contract or pay as you go really depends on your level of usage. If you need your phone to run a small business, or you run up a lot of minutes just chatting, then a contract will probably be the best option - but try to avoid the stuff you don't really need.
If, however, you use the phone occassionally, then a contract is probably a waste of money and you'd be better with a PAYG scheme.
Whatever you decide, do a bit of research and try to play one off against the other. Remember that the companies are in a fiercely competitive market and are desperate for your business. I've managed to negotiate some substantial discounts off my monthly contract by threatening to leave my current provider. Try it...it works!
Paul Carcone