I can replicate it ...

iPhone 4 running iOS 4.1 (8B117). Can't seem to get into anything else but the phone app though.

That's not very good considering there was a similar vulnerability before now.

Probably wouldn't be too much of an issue if your phone was in the UK when lost. One call to the phone company and they can disable it pretty quickly. Can take longer if you are roaming abroad though.

I suspect an update will be quickly released to fix this.