Ouch. Here’s a rather major bug/exploit in iOS 4.1. By manipulating with the sleep and power button along with faking an emergency call, you can gain access to an iPhone’s contact list, email access, and full keypad functionality with a couple of steps. These issues were detailed in the MacRumors forums and reproduced by MacMagazine in the video below:
Scanning the comments and tries so far shows that the bug doesn’t seem to work in iOS 4.2 beta, so it appears Apple is well aware of the Bug and the next update should fix the problem right up. Still won’t be a good news cycle day for Apple though.