When Apple released the 16GB & 32GB iPhone 3GS in June, it meant the older 8GB 3G was going to be old news and would be less desirable to consumers.
So Apple decided to give it a hefty price cut down to just $99 in hopes to deplete what inventory it had left. Apple has yet to reveal if the deal worked, they will only say iPhones (as a whole) are selling extremely well.
You will still have to sign a new two year contract to get the $99 iPhone however.