Since the iPhone 4 launched there have been people complaining about poor reception and dropped calls if holding the phone a certain way.
It seems that
all versions of the iPhone use an incorrect formula to display the signal strength and are overstating the signal strength.
Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. Their big drop in bars is because their high bars were never real in the first place.
Apple will be correcting this issue with a software update for the 3GS and 3G versions but
NOT the original iPhone.
Complete article at the source.

Source:
Mobilia.com