The iPhone 4 signal issue is thoroughly dissected by fscked.co.uk
The tl;dr version of this is: the signal strength bars are almost meaningless and should not be relied on.
Incidentally, this also explains what’s going on when you have a strong signal, attempt to make a call, and can’t connect. The bars only indicate how well your phone can listen to the cell tower. They don’t tell you anything about how well the tower can receive your phone, but that’s a pretty important part of making a call. Similarly, the phone doesn’t know anything about what’s going on in the cell provider’s network past the tower; if you’re on a really busy cell it might not have any spare outgoing circuits to direct your call to, so even if the radio is working fine, you might still not be able to get through. If you’re on AT&T it’s probably all of the above at the same time of course.
In conclusion, version 4 of the iPhone continues to have serious data integrity and availability issues.
Taking my Objective Scientist Dude hat off now, I’d say that iPhone 4 is a fantastic device but a lousy phone.
Updated to add: I had no idea Apple would made this announcement today:
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.
Apple is promising a patch fix “within a few weeks”. Users may also choose to get a full refund within 30 days of purchase, the firm has said.