Not with AT&T - they don't allow prepaid plans on iPhones - I believe voice/sms works, but data will be blocked/non functional
That's right. You really CAN use them on prepaid for voice/messaging, but only the data portion of the phone will not work if you try to use it. Even if you did purchase a prepaid data plan, it still will not connect unless you go through some special process to allow it to work, but I don't think it's worth one's time.
OP, your other alternative is either to use another smartphone besides your iPhone, or there are cheaper GoPhones that are available to purchase that can connect to the data network depending on which one you choose. Or, if you don't mind leaving out the data portion for your iPhone, you can use that. But you will only be able to access voice and messaging services. You can use Wi-Fi instead of data if you'd like.