I bought a cheapy mobile phone at Musimundo a few years ago. It was $59 pesos and included $59 pesos of credit (basically free phone). I use the prepaid plan and just buy a card whenever I need credit. Currently I have an iPhone 2G, unlocked, and it works like a dream. I also have an app on it called "Truphone" which allows me to make international calls via wi-fi for dirt cheap (5¢/min to USA).

As for activating the phone, the salesperson at Musimundo did the whole thing for me and it has been working since, even when I've left the country over 6 months and returned later, the number is still active.

Find a nice salesperson at Musimundo or Claro who will make the activation call for you. They're hard to find here (nice), but you can find them. Or get a fluent Spanish speaker to make the call for you.