From Apple:
We have discovered the cause of this dramatic drop in bars, and it is both simple and surprising.
Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong. Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. For example, we sometimes display 4 bars when we should be displaying as few as 2 bars. Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying 4 or 5 bars. Their big drop in bars is because their high bars were never real in the first place.
That means that testing of the iPhone 4's built-in antennae is completely unreliable. If prototype units were tested using the faulty algorithm, then we have no idea - to this day - if a phone which has its antenna as part of the phone's design gets any better or worse reception than other phones. When Apple engineers were walking around looking at cell reception on the phone, the information they were looking at was completely useless.
Shocking (and somewhat disheartening) admission from Apple.
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