First go to T-Mobile website to purchase an activation kit for $1:
Choose the micro SIM, because you can very easily cut it to a standard SIM and, a bonus, you get a micro to standard SIM adapter that is quite difficult to make (see the following video). It takes few days for the kit to arrive in your mailbox.
Once you have received the activation kit, go to T-Mobile website again to activate it:
Now go to 7-11, KMart, etc. and buy a $30 refill. Use cash, it's always a bad idea to tight a credit card to a prepaid plan. Now insert the SIM card into your phone and enjoy. Speed is slower than AT&T, Verizon and Sprint, due to either the old phone (Nexus One) and/or my location. Youtube can be played smoothly only with 240p quality.
Tether and HotSpot work, but you have to change your browser's user agent as described here.
One of alternatives: StraightTalk "unlimited" for $45 per month. The activation kit costs $15 and can be ordered from ST website. You may choose between AT&T, T-Mobile, Verizon and Sprint.