Converted iPhone 4 to iPod touch-can't message or FaceTime

My wife upgraded from an iPhone4 to iPhone5.  I removed the SIM and connected the iPhone4 to our WiFi network so my son could use it as an iPod touch.  It has been working great until this Christmas when his cousin got an iPod touch and asked to facetime with him.  I thought this was a cool idea, but can't get any of our Apple IDs accepted for use.

The error is:

Could not sign in.  Please check your network connection and try again. 

I verified username and pw by logging into iCloud (no problems).  Verified WiFi by surfing the net.  Is there something special I need to do to the "phone" to make this work?  It almost seems like no matter what I do, it is still trying to connect to the cell network.  I even tried to enable airplane mode!