The latest OS update for the iPhone is OS 3.1 and it is supposed to add bug fixes and improve security and reliability. However, users that use Microsoft Exchange Server 2007 may want to skip the update for the time being.
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Reports are coming in that the new update breaks access to the Exchange server and gives an error message saying, "Policy Requirement - The account [account name] requires encryption which is not supported on this iPod/iPhone." Presumably, Apple is working to fix the issue.
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This means that administrators of corporate networks using Exchange 2007 now have a serious issue to deal with and the users themselves will be facing problems as well. So far, Apple has offered no official explanation for the problem.