Los Angeles (CA) – Apple’s much anticipated 3G iPhone launch turned into a massive disaster after the company’s iTunes authentication server went down from the high volume of traffic.  People who had waited hours, even days, in line were told to go home to activate their phones after in-store activations began taking 30 to 45 minutes.  In many cases, Apple employees just gave up.

Since you can’t really use the iPhone until you activate it, customers are left with a very expensive brick.  Sure they can make emergency calls, but that’s about it.  You would think Apple would have learned some lessons from the previous iPhone launch, but right now thousands, maybe millions of people are having problems getting their phones to work.

Apple officials are reporting “overwhelming demand” on their servers which are being hit with a double whammy today.  New iPhone purchasers must activate their phone and AT&T service by connecting to iTunes.  In addition, older iPhone users are trying to upgrade their firmware to the 2.0 version in order to all the new goodies – mainly the Apple Apps store.    The combination of traffic is taking down the servers in a self-inflicted denial of service attack.  To add insult to injury, many phones are now unusable or “bricked”.

A quick call to the local store showed the magnitude of the problem.  The employee told us to not even bother coming in because there were no more phones and that there were “severe” problems with the servers.

Videographer Max Wilson told us that he finally upgraded his older iPhone to the new firmware – after approximately 20 tries and two hours.  Unlike other firmware upgrades, the older iPhone requires both a software install AND a reauthentication to iTunes.  Some people report their phones are going into a continuous restore/reboot mode and that the phone keeps trying to hit the Apple servers.  This is a similar problem to unreachable web sites where people keep hitting F5 to refresh the broken page – basically very bad news.

Apple stock is taking a slight hit on the news and is currently down $2.15 as of 12:50 PM Pacific time.