The iPhone 5 will come out in June-July (a new model always does). If you get the iPhone 4 now, you will have to pay full price for the newer model this summer (likely $600-$700). I believe it takes 18 months before you get a new phone for the upgrade price. It may also be that you after so many months you can get a new phone for a price that is between the upgrade price and the full price. My advice it so merely wait until June-July and buy the new model when it comes out.
Oh an no, you don't have to send the older model in to upgrade to the newer model. Once bought, it is yours. Might as well jailbreak it and have some fun.
By the way, keep in mind that while the iPhone 4 is sometimes called the 4G, it will not work on the 4G data network...only 3G. It is merely the fourth generation iPhone.