1) Although I don't own the iPhone, I have read on other forums that AT&T'S PYP and PAYG customers have both been able to use the iPhone. I think the PYP would work better with the iPhone due to the ability to add the unlimited data on to your plan. The highest amount of data that you could get on the PAYG plans would be 5MB/$9.99.
2) AT&T does offer more coverage on their PYP service than they do with PAYG. Here is a link to AT&T's prepaid service site, that you can use to compare the coverage of both of their plans:
Prepaid cell phone, GoPhone - Wireless from AT&T, formerly Cingular