That is true. Service contracts for wireless service can be transferred from one carrier to another. In this case, Cingular probably did it because they happened to hold a license and operate a system in the same area as AT&T wireless, and in order for the merger to pass regulatory muster, the combined company had to divest itself of one of those systems and its subscribers. The original poster happened to be unlucky enough to be on the discarded network.
I can see where the original poster may have issues. Alltel is a CDMA carrier; AT&T/Cingular operate GSM/TDMA. This will at the very least mean that in time, s/he will have to change handsets to a CDMA-compliant model.
However, unless Alltel has acted in bad faith, or clearly cannot live up to the contract's terms (i.e. cannot provide the service level, coverage or plan features as originally agreed upon), then the OP is stuck with the contract through its duration.
E-mail fudged to thwart spammers. Transpose the c's and a's in my e-mail address to reply.