Can you buy a new iPhone for $40? No, but you can get your hands on a clone made by CECT.
PC Pro's Steve Cassidy has the details on the SciPhone:
Holding this up beside my iPhone 3G, it is seriously difficult to tell the two devices apart. The back panel of the mysterious phone very clearly labels it as a 32Gb iPhone, complete with Apple logo. My contact claimed to have bought this “down the pub for £25? in an iPhone 3GS Apple box, and I would say that the exterior case is a millimetre perfect copy, with three basic distinguishing areas: the headphone socket, the power button, and the mute slider. It was the mute slider that convinced me of the phone’s “knock-off” status.
A knockoff it might be, but it's not necessarily a good knockoff:
It has dual SIM handling, too, and came with a bizarre auxiliary battery festooned with warnings about not pressing a button mounted on the front of the top-up device.
Personally, I love the IE icon on the touchscreen:
Unlike a genuine iPhone, the SciPhone has dual SIM capability and a user-replaceable battery.
Just in case anyone is wondering, no, I'm not recommending anyone go out and buy one of these FrankeniPhones!