It's called inductive coupling. In this case, the hand, just a tiny bit sweaty even though you think it's dry, inductively couples with the antenna and basically "steals" signal. The fact that this device allows this to the extent demonstrated indicates an extremely poorly designed RF antenna circuit.
The only cheap, practical fix is to create distance between the antenna and hand. Insulation is worthless. You can confirm this simply by observing any "through the glass" cell phone antenna. Glass is a nearly perfect electrical insulator at the voltages of modern communications devices, but the RF signal penetrates the glass easily. Some tinted windows will attenuated the signal, but these are generally not a large problem given the proximity of cell phone towers. The iPhone has a large problem.
Looks like the iPhone needs a clunky case in which to center it and keep hands at a distance. Or a speaker phone app maybe.
If I were a fanatical juvenile, I'd be really angry. But since I use a Palm Pre Plus with outstanding RF quaities I'm happy. And damn! Look at the cost you FJs are forking over for a K-Mart quality phone. Makes me, well... laugh. :+)