This is not affecting owners of the iPhone 3GS, due to the newer device's support for Exchange encryption. Prior to iPhone OS 3.1 the encryption policy was ignored for all models. Now that 3.1 is available, users are seeing this policy being correctly enforced and older iPhones without encryption support are left without access to Exchange services.
While many are reacting to this issue as though it's a bug, and are reporting it as such, the reality is that the Exchange encryption requirement is a feature and the fact that it was not being correctly enforced was actually a security hole. IT administrators with Exchange 2007 SP1 servers and iPhone clients are probably going to be fielding an above-average level of incoming questions, but at least they can rest easy knowing that Exchange encryption is now working correctly. Cold comfort for their users, though.
If you are running into this issue, the straightforward (though pricey) solution is to upgrade to the iPhone 3GS; or consider bribing your IT guy with Red Bull so he will disable the encryption requirement for mobile devices. But we want to hear from you; are you using an Exchange account? Can you still access it following the upgrade to 3.1? Which device are you using, iPhone or iPod touch; 3G or 3GS? Is this a little thing that means a lot to you from a security perspective or have you been left high and dry without access to critical email?
Update: MacRumors points out that Apple has now covered this situation in a new KB article.
[Via Broadband Reports]
Apple iPhone OS 3.0
Apple iPhone 3G