There have been a lot of stories lately about iPhone thefts. The phenomena closely resembles purse snatching. The thief grabs something valuable that is out in the open and runs like mad! Also, much like having your purse snatched, losing an iPhone is about more than the iPhone itself. Sure the iPhone is valuable, but perhaps not as much as what's inside.
For instance, in addition to my adress book, my iPhone stores my browsing history (including online banking), access to over 13,000 email messages, my Twitter, Facebook and IM accounts, personal photos, over 1.5gb of data on Dropbox, several personal documents, access to my source code repository and well, you get the idea. If all of that is not enough, a would-be iPhone snatcher could concievablly gain access to my MacBook Pro using the VNC client I installed on my iPhone!
However, unlike the victims of purse snatchers, you can do something to protect what is inside your iPhone. If you touch the System icon on your iPhone's Home Screen, then choose General and Passcode Lock, you can create a four digit numeric passcode which must be entered by anyone attempting to access your iPhone. For even more protection you can have the iPhone wipe itself clean if anyone enters the wrong passcode ten times in a row (be sure you keep current backups if you use this option). If the thought of entering a passcode every time you use your iPhone is less than appealing you can choose to lock the phone only after it has been off for several minutes or even hours.
This is not government level security by any stretch of the imagination. Personally I would prefer a five or seven digit code and the ability to erase the data long before ten failed attempts, but it is still much better than leaving all my data unprotected (there is a way to make security even tighter using profiles, but it an advanced topic). Also, it is built-in, it is free and let us face it, it is more than enough for most of us. Protect yourself, protect your iPhone, protect your data!