UPDATE: Watch the full video of our iPhone 3G line experience.

We had no idea that our quest to grab a few iPhone 3G units at launch here in the Seattle area would turn out to be an utter fiasco. Last year, when the original iPhone launched, we had a much longer wait in line (over 19 hours versus just over 8 hours) last year, and were further back in the line to boot. However, it was a complete failure on both Apple and AT&T’s part in making sure that the experience went as smoothly as possible.

Oh, sure, we finally have our iPhone 3Gs working and in good shape, but it took much, much longer to get them in that condition than it should have. Read on as we relive the events that took place earlier this afternoon at the Alderwood Mall Apple Store. Oh, and credit for that photo of Sparky walking out after being first in line goes to Jim Valley.

So in all reality, things were going great up until about an hour before the Apple Store opened up at 8:00 AM, as fatigue was starting to set in. No sleep was had during the night, as Gear Live did a bunch of giveaways of iPhone gear, and also a lot of hanging out. Our fault - we were all tired, but ready to experience the iPhone 3G goodness. So much so that our group was first in line to purchase the new gadget. It was when the doors open where everything seemingly fell apart.

I requested two 16 GB iPhone 3G units, one black and one white. The others from our crew all purchased one each, making it a total of 7 iPhone 3Gs desired. They started ringing me up within a minute of me entering the store, and I thought it was going to be a breeze. I gave all my current iPhone account into. Then there was silence for a good thirty seconds, before I was asked for all that info again. Then more silence, followed by me giving that same information again. Odd.

It seemed the entire store had stalled, as no one was moving through checkout. We were all just standing there, as Apple Store employees started talking about server issues. Really? Server issues? As in, you neglected to make absolutely certain that you would have this covered on the morning of one of the biggest product launches in the history of both Apple and AT&T Wireless?

Sparing you the boring details, we finally successfully paid for the two iPhone 3Gs after about 30 minutes. Then it was time to head over to the activation desk. Remember, iPhone 3G can’t be activated at home like the original iPhone, it must instead be activated in-store. Things got interesting here because I asked the Genius Bar peeps not to open up the phones until we filmed a proper unboxing segment right there in the store. Hey, if they were going to force us to open these units up in the store, then we were going to make sure we captured the unboxing on film first. Once we got that out of the way, they told us to just plug our phones into any of the MacBook Air units, and that it should activate in 30 seconds or so. Woot!

Not so fast. Instead, we got error after error after error. It took about two minutes for each error to come up. So we (or at least those of us who were able to purchase phones by this point) were at the activation desk now for a good 15 minutes. Then, the shocking revelation came next, as we were told that we would need to bring our phones home and activate them in iTunes later on. Wait, what? Take the iPhone 3G home and activate it in iTunes? I thought that wasn’t possible with the new hardware. So, you mean, I could have just walked out with a newly purchased iPhone 3G and plugged it in at home like last time? Fine, no need to argue about anything, at least we could get out of there. Not all of us had so much luck though, as two of the seven had to go to the AT&T Store, due to account screw-ups on their part that had Apple computers showing them as ineligible for the subsidized price - even though they were.

After we got back to Gear Live HQ, we started the process of activating our iPhone 3G units. For five phones, from the time we started to the time we finished, it took us over an hour. That hour consisted of plugging the phones into iTunes, hoping for the best, and getting an error after two minutes. Repeat. Repeat. Repeat. Finally, though, we all ended up with iPhones that could send and receive calls and data. Cool.

Oh, wait, the phones then wouldn’t sync. Before I left to purchase iPhone 3G, I made one last sync and backup of my original iPhone. However, when I connected my now-activated iPhone 3G to iTunes, I would continue to get the -4 error telling me that I couldn’t access the iTunes Store. Lovely. Getting iTunes to finally recognize that I was connecting an activated phone and that I just wanted to resync some data took another hour.

Remember, here at Gear Live, we know what we are doing when it comes to gadgets and consumer electronics. However, the iPhone has transcended our audience with its mass market appeal. That means that both Apple and AT&T should have expected the turnout. Heck, we could’ve told them ourselves if they’d asked us, and we bet many other publications who have a community of readers like you supporting them could have done the same. As frustrating as it was to deal with this situation, we were cool because we knew that, eventually, it would get handled.

But what about those who were purchasing their first iPhone this morning because they thought it was a cool phone, but weren’t necessarily tech savvy? Can you imagine how frustrating this experience must have been for them? This is really a case of poor planning by two major companies who just couldn’t get things together in time for the launch of what may likely be their highest profile product this year. Who knows, maybe Apple was playing catch-up after their MobileMe launch ended up taking days instead of the 6 hours that they expected. Seriously, do they not know their own audience?

Okay, now we wanna hear from you. How did your iPhone 3G launch day purchase go? Any trouble, or was it a no-hassle experience?