Until now it has been relatively difficult to find an Android smartphone without a data plan that you could use with wireless Internet only. Some older Android phones can be picked up used, but you may have to pay at least something to get the phone in a working state. Not to mention the fact that older phones are often stuck with older versions of the Android operating system.
I have an old T-Mobile G1 that I use for Android development with wifi only, but to get it running I had to buy a SIM card and a month's worth of talk and data. I only had to pay around $30 for that, but I would have rather kept that $30 for myself. And in any case, the G1 was still running Android 1.6. Getting a newer version onto the phone requires rooting the device and upgrading the OS yourself, a time consuming and somewhat risky task.
But now there is a pretty good option if just want an Android smartphone but don't want to pay for a monthly data plan.
Virgin Mobile USA now offers the LG Optimus V for about $150. It's a decent but not spectacular phone, but best of all it runs Android 2.2 and you can get the phone up and running without ever buying a service plan.
As of this writing, Radio Shack and Target have the phones. If you want one, be sure you get the "Optimus V" (for Virgin Mobile) and not the "Optimus S" (for Sprint). Maybe the Sprint version allows this, but I'm not sure.
How to Activate the Android Phone with WiFi Only
Once you have the phone, charge it the battery and turn it on. Once Android has booted, unlock the screen by swiping the lock icon to the right. Click the Menu button (the physical button on the bottom left), then click Settings on the screen.
Click Wireless & Networks on the screen, then click Wi-Fi to turn on wirelss networking. Now you are set to access the Internet from the phone.
Now click Wi-Fi Settings to scan for and connect to available wireless networks. Once the phone successfully connects to a wireless access point, you're ready to go.