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Unlocked iPhone doesn't work in UK

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I recently bought an iPhone 4S and the seller claimed the phone was unlocked but doesn't work in the UK (which is where I stay). So upon receiving the phone I placed an O2 sim card in it and the phone recognised the sim. It had plenty of signal and 3G but then once the phone was registered I lost all signal. Why, if the phone is unlocked, would it not work in the UK? I'm slightly confused here :confused:

As a small test I reset all the settings, registered again and this time the signal stayed around so tried phoning it, but to no avail. Then I tried calling from it, but failed once again :( The signal fell away after that.

At first I thought it might be the antenna but it does receive signal and recognises the network of the sim :confused:

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