If I purchase a phone under a 2 year contract and then end the contract early, do I also have to return the phone?
If the phone is purchased at a subsidized price by signing a two-year contract, then the phone is yours to do with as you wish. Of course, if you end the contract early, you'll incur an Early Termination Fee.
Ok, so I buy a phone under a 2 year contract. The phone is free because of this. 1 month later, I terminate the contract and pay $350 for doing so. The phone is mine to keep. Can I then use this phone on a different line that I already have that is on a month to month plan?
As I said, you can do whatever you want with it ... put it on another line, give it away, sell it.
And keep in mind that a new activation will require a $35 activation fee (or a $30 upgrade fee if you're upgrading a line), plus you'll pay a month in advance for your service. And when you cancel the line, the service isn't pro-rated. In other words, run the numbers because depending on which phone you're looking at as 'free' with a two-year contract, the cost may be close to paying full retail in the long-run, and it would be an easier process to just pay full retail in that case.
The G3 is currently free. So sure if one wanted to scam Verizon out of some money they could start a new line, get the G3 for free plus $35 activation fee plus 1 month service and then get rid of that line and pay the ETF. That would save them $200. Personally I'd just find a way to get the $200 than to mess with that.