For what it's worth to anyone who might run into this problem in the future...
I was having exactly the same problem; the application ran fine on the simulator, but on the actual device (8700c) I got the same error: Java.io.IOException: could not open tunnel - failed
Jfisher was right; my problem was an APN setup issue.
I searched around and found: "Mark's Big BerryFAQ" (on Blackberry Forums) and under that: "How to Configure Full Internet Access On BlackBerry". BlackBerry Internet - MSN/chat/web/telnet/TCPIP - No BES!
Mark has the APN, Username, and Password listed for many carriers. For example,
After I changed these settings, my error changed to: Java.io.IOException: Bad DNS Address
However, that error seemed to go away after I unloaded and reloaded the application on the device a few times. Anyway, it seems to work fine now