......will I be locked out of future software upgrades. Rumour has it that the next iPhone will have a different processor. Does this mean a similar situation to the Power PC to Intel switch where the newest software would not work on the Power PC, forcing you to change hardware?

No. I currently have the 3G iPhone and when the 3GS was released we were given a free upgrade to the new operating system, OS V3.0. The only difference was some of the features were disabled due to the differences in the phones. When the iPhone is released later this year I would suspect that you will get the free upgrade to V4.0 but maybe with a few bits missing.