Hi mate, I had the same issue with my Nokia, best thing is to restore the image with a fresh bootloader, by using just the null modem cable and the process should take around half an hour, but it did the trick for me.
Hope this helps (i'm trying to think of what the software was called)
O2 changed their T&C's last year, gave a months notice, BUT if you took a contract before the letter, then O2 couldn't stop people from terminating the contract as they breeched the T&C's.
I'm sure you will be able to to cancel the contract, and you get to keep the phone. Then take another...
Are you already on o2?
And are you on P&G?
If so o2 can give you discount according to your top ups!
Just go into an o2 store and tell them you want to upgrade your p&g phone, and what discount you can get.