This is really only the start of the flood of security related issues that are going to come to haunt not just the iPhone but all smartphones.
This story of some German researchers who have successfully been able to reveal stored passwords on a locked iPhone in less than 6 minutes, and that is without cracking the phone’s passcode. As the German researches said:
The attack works because the cryptographic key on current iOS devices is based on material available within the device and is independent of the passcode
There is currently no fix for this so iPhone users might want to think about changing their passwords on a regular basis.
via Redmond Pie