Is the policy different if the phone is not purchased as part of a contract?

I returned both a Samsung A300 under T-Mobile (awful, awful phone) and a SE P800 under Orange. Both were taken back instantly by doth dealers without a single question, but it was the mobile service operator that seemed to hold the return policy, not the dealer, so I'd guess that the store sends the return phones back to the service providers for refunds and they in turn probably return them to manufacturers for refurb.

If the phone was full price then I'd assume that the dealer just puts it in the bargain bin, as Justin says.