Can I give my upgraded phone away?

Don't try to game the system with your original thought, Bob is offering good advice.

Example: I have a non-smart phone and am ready for an upgrade. I choose a phone (iPhone) online and they send it to me. Instead of activating the phone myself, I decide to give it to a friend that already has a plan with an iPhone 4. Can she use the phone on her plan? Will my plan remain unchanged?

If you buy a SUBSIDIZED phone from ATT it's locked to them and they will, as you read all over the net, charge you the new rate to pay off the phone.

To me this sounds like you are trying to skirt some rules or such. THAT is well done on the web with a lot of folk screaming over the new bill.
Bob

.....if you fail to activate the new device, you CAN be billed full retail price of the phone. Keep that in mind.

"the extra 70 dollars is from taxes and she reasoned that the tax is based on the fact that the retail price for the iphone is 700+?"
- http://forums.macrumors.com/showthread.php?t=759426

"Let me tell you how it will be
There's one for you, nineteen for me
Cos I'm the taxman, yeah, I'm the taxman" - Beatles.

Thanks to all ~ was just trying to help a friend but was thinking that it would not work. Thanks again all who responded!

You could also have her add you to her plan, wait a month or so, then 'gift' her the upgrade w/o changing your line/features. As long as you are not currently under contract you could do this immediately.