How can one convert an unused, older iPhone into an iPod?

You shouldn’t need to do anything special to get it to work. I use a 1st gen. iPhone for development and music and I have no problem with it. Have you tried rebooting the device?

http://support.apple.com/kb/HT3406

Yes and I also restored it. Still stuck on the home screen wanting iTunes. When connected it only asks to be connected to a phone number and on cancel it locks it out. It is a 2G.

So you’ve done what @johnpowell said and it still isn’t working?

OH! I did not see @johnpowell‘s post! I was on a stupid archaic (but “new”) browser which did not update!

Off to chase that link! :D

Thanks @johnpowell ! I am going to go get a new card for it at AT&T. :D

You need to use a supported sim card to activate it, after that you can take out the sim card and use it as an iPod. Borrowing an AT&T sim card from a friend should do the trick.

I actually have one but it wants me to activate the phone to my current number and buy a plan…. :(

Does it really change the number over? That sounds like a nightmare to unravel.