4. Secure your iTunes host. Your PIN affords you little protection if someone gets hold of your computer. That's because your PC or Mac keeps a complete image of the flash memory in your iPhone. From this recovery image, a skilled hacker could read all of the data on the phone. It only takes a few seconds to move that firmware image from your disk to a thumb drive. And it takes little time or skill to replace that image with one that can reflash your iPhone's firmware with something nasty. The smartest way to go is to keep your iPhone backups on your own thumb drive. This makes automatic restores and updates slightly more challenging, but it's worth it.
5. Don't jailbreak your iPhone. The iPhone jailbreak process purposely disarms the mechanisms that Apple created to protect your data. With App Store, a trusted party tests and vouches for the software, and Apple can trigger an uninstall of an app if a risk is discovered later. The protections offered by open source projects --multiple contributors, readily viewable code, and a central location for comments and fixes -- don't exist in the jailbreak world. I'll grant that jailbreaking an iPod Touch or a retired iPhone can be good fun. Relying on a jailbroken iPhone as your primary mobile device is idiotic.
It's so quick and easy to jailbreak an iPhone that it takes a minimum of social engineering to trick a trusting user into bypassing Apple's built-in guard against modified firmware. It's a simple sell: By holding down one key while clicking Restore, you don't waste time waiting for new firmware to download from Apple. Don't fall for it. Always download firmware directly from Apple.
6. Hide sensitive data in plain sight. The iPhone has no device-wide data encryption. It does support encrypted databases, but the inconvenience of having to unlock the data every time you want to read it may limit your use of it. As an alternative, hide some of your most sensitive data in plain sight by scattering it across nonobvious places, like your iPod library and browser bookmarks. Embed what you really need to protect in nontext form, such as buried among lots of images or audio, to avoid discovery by string scanning of your desktop or firmware. As a bonus (or not, in some cases), using iPod files syncs your secrets across iPod, iTunes, MobileMe, and AppleTV.
7. Use FileVault on the Mac or EFS on Vista. On a Mac, create a separate user account with a strong password, apply FileVault protection (using System Preferences), and activate and manage your iPhone exclusively from that account. If you never leave that account logged in, you can reinforce other desktop protection methods or skip them entirely. On Windows Vista, consider using Encrypted File System (EFS) to encrypt the entire iTunes file tree. Neither of these methods protects data on your iPhone, but it does guard against insertion of doctored firmware or simple copying of data.