I have a HTC Dream (G1 from T Mobile) and have for over 2 years now. I got it, got the option to upgrade, or have a cheaper contract and keep my current phone (after 12 month) so I kept it because I saw no need to upgrade...4 months later, and I need to upgrade. I'm doing some programming work with the Android interface and 2.1 is required. The G1 only has 2.0. So, the questions:

1) Will T Mobile allow me to upgrade halfway through a contract? Im expecting they'll put the contract price back up, but that doesn't bother me at all.
2) Which HTC phones from T Mobile operate on 2.1?
3) Is there any way to transfer all my App purchases onto my new phone? I don't want to lose the £50 odd of stuff I've bought.

So as I understand it you have downgraded your tariff but still taken out a new contract for 12 months?

Usually contracts just carry on after it runs it's full term unless you cancel it. Changing the tariff shouldn't put you into a new contract.

It's still the same contract, they just put a 10 pound credit on it each month to bring my bill down.

You should be able to upgrade now then by taking out a new 12/18/24 month contract with a new phone.

Ringing and asking best idea but you may find you're in a 12 month contract as part of getting your discount

If you are that desperate to upgrade and they won't let you it may be worth considering taking an additional contract out and running two until the other one runs out. Also I'm not fully up on android or all it's handsets but is it not possible to root the phone and upgrade to 2.1 that way?

You will be able to upgrade yeah, will just lose the £10 credit. Is it 2.1 and above or does it have to be 2.1 only? If not and you are a fan of touch only the HTC Desire is the way to go.
As long as the phone is linked wit ha google account, you will be able to redownlaod any apps you have already purchased as long as they are compatible with 2.1/2.2

Some excellent advice here. Thanks everyone.