As CNET's Erica Ogg reported earlier today, Apple has released the iOS 4.0.1 update, which is supposed to address a display problem with the iPhone's signal strength calculation, which Apple claims is part of the reason people are seeing the signals drop off rapidly when there is an interruption in the antenna's RF signal.
So far the update seems to do exactly what Apple claims, which is to modify how the the calculations used to interpret the signal strength (along with a cosmetic alteration to the bar sizes).
Most people still have problems where a "death grip" causes the signal strength to diminish; however, the extent of the reported signal variations is less. Where before the number of bars would drop to zero, now people are reporting one bar showing when they hold their phones in a tight grip.
Apple discussion poster "golgo1313" writes:
Where I used to get 5 bars, now I get 3. Doing the death grip reduces it to 1 (where it dropped to previously). [Beyond that] the bars are taller.
Overall do not expect this to be a fix for any reception problems. If you previously were concerned about bars dropping or fluctuating and were uncertain if this meant you were going to lose all signal, then the fix will address that problem. This update should basically allow people to more accurately determine how much the reception interference is affecting their phones, instead of the previous assumption that they were losing all reception whenever the phone was picked up.
Reception itself is purely a hardware issue, so you will still need some form of physical block to prevent interference from causing the signal degradation. Apple is expected to discuss any problems related to this in Friday's press conference.
On the positive side of things, this update seems to have addressed issues people were having with the iPhone's proximity sensor.