Well, it seems that there is a lot confusion about AGPS that mobile equipment (like the iPhone) uses. I even read once that AGPS was GSM-Based only. Of course, this is completely wrong.
So, what is AGPS? To answer this question, we have to have a brief look at "normal" GPS. An usual GPS receiver uses statellites to determine its position. To do so, it receives signals from different satellites at a time and compares the runtime difference of them.
In order to compute a position, the GPS receiver has to know the exact position of every satellite. As the satellite orbit may vary, orbit data is provided by the GPS satellites. This is the so-called almanac, which can be downloaded from the GPS satellites.
The longer your GPS receiver was not used, the longer it will take to acquire your exact position. Having moved far away from the position you used GPS the last time will make this worse (e.g. after travelling by plane).
Depending on your GPS equipment and view of the sky, a so called cold start will take one minute or more.
Okay, back to AGPS then. AGPS is a GPS, that is "assisted". You could think of it like your car's brake system. Your car's brakes just work, but they might be "assisted" by a system like antilock. The system just assists your brake system, making it working better in some cases, but doesn't change the way your brake system works.
Same thing on AGPS. The GPS receiver in your phone gets some assistance, but it still will work without that like a GPS receiver without the "A".
How does that work? As I said, you need almanac data in order to aquire a position. Depending on conditions, it may take a minute or longer to get this data from GPS satellites. So, AGPS just downloads the almanac data, using the cellular network, which is way faster than using the satellites.
Also, knowing your raw position will quicken the process of getting a GPS lock. AGPS aquires a raw position of the device by triangulating adjacent cell towers.
So, all AGPS does is using certain techniques that will speed up the process of acquiring your position using a GPS device by using certain cellular network features. Nothing more, nothing less.
Acquiring positional data by triangulation, like the first generation iPhone does, has nothing to do with AGPS and espechially not with GPS.
Beside that, every AGPS device should work as a normal GPS device if cellular networks are not available. Unfortunately, depending on the way the GPS is implemented (by means of hard- and software), it might be possible that you fail to aquire a position using an AGPS device if there is no cellular reception, but this is an issue of the device used, not of AGPS in general.
So, consider AGPS just as "GPS plus", not as something different!
So, what about the iPhone?
Well, the iPhone's behaviour is a little strange relating to AGPS. The iPhone will not be able to acquire a position while flight mode is being used, but it still will be able if the SIM module is being removed.
So, it might be possible that flight mode just turns off GPS. It also might be possible that AGPS still is able to receive emegency data and thus be working without a SIM inserted. Unfortunately, I don't know that because there are many resources about AGPS but they don't mention emergency procedures. It still is somewhat likely that they exist as AGPS is also being used in cell phones in order to locate them quickly on emergency calls.
Anyway, I still think the iPhone's GPS will work standalone. There was a guy who used it on a boat off the coast without cellular reception, so I think flight mode just disables GPS in general. Unfortunately, I can't find his report at this time. Will keep you posted.
Update: According to a comment on this post, GPS usage is possible without cellular reception. This corresponds to what I had in mind about GPS on the iPhone and hints to disabled GPS while using flight mode.