Can I use a modern Android phone with no phone plan?
Yes, it is possible, but it might be tricky depending on the phone.

For instance, I bought a T-Mobile G1 (not the Android Dev Phone version) and had to have a SIM card in it.  You can either borrow a friend's or you can do what I did, which was buy a prepaid-SIM card.  It cost less than $40.  If you have a friend's SIM card that has a data plan, then you can activate the phone.  But if you don't want to have to have a SIM card in the phone anymore, you'll have to root the phone and install CyanogenMod on it.

Now if you bought a pre-paid SIM card, then you can activate the phone over wifi by following these steps (this is specific to the G1).

A G1 is probably the cheapest phone you can get if you're only wanting to use it as a hardware testing device. On ebay it is around the $100-150 range.