No it's not unless you reaaally stretch the meaning of "functional". The whole point of Skype is, you know, to make calls. And to receive them. And you can't do that on WP7, because well, I don't think you spend the whole day with your phone in your hand looking at the Skype application running.
Um lets keep the thread on topic shall we?
I'll vote to return it and get it off contract. Might also want to get some insurance for it so you don't have to sign another contract for another one also.