Not able to activate 3GS even after restore to latest firmware 4.2.1 iPhone 3G

When connected to iTunes after the restore process, itunes states that it has encountered a problem with the phone and that it cant be activated. The phone has a working SIM that has been assigned to the IMEI number of the phone with a number registered on the AT&T network.
I have attempted to restore the phone twice but same problem.
Are there any particular things that can be recommended for checking before resorting to Apple service. It has never been activated to my knowledge.
Can anyone also tell me what the general charges are for Apple repair or if they are likely to replace under warranty. What is the warranty for the 3GS?
Any help would be appreciated.
Thanks.
3Gs iOS 4 Current firmware 4.2.1