Apparently user data can be recovered from the refurbished iPhones. One detective from Oregon State Police managed to recover user personal data like emails, photos and more from an out-of-the-box refurbished iPhone he bought.
Iphone developer Jonathan Zdziarski notes that “all of the personal information that was sitting on [his iPhone] prior to the erase or restore is still left sitting in the unallocated blocks of the iPhone’s NAND memory.”

That means that doing restore thought iTunes does not erase all of the data. What’s needed is a low level NAND format, but there aren’t any publicly available methods at the moment. Zdziarski says “there are only a couple low-level methods to format the NAND and I’m not sharing at the moment.”
With the 3G iPhone coming next month, a lot of people might want to sell their iPhones, which might pose a security risk for some people, if they don’t take care of this properly.
Thanks: TUAW
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