Radio frequency reception is an interesting beast. Electricity, magnetism, and field theory are also equally interesting. These subjects are studied by electrical engineers for four years before they get the entry level qualification to work in positions involving these subject areas. The point being, these are complex sciences, that lay explanations like "the hand is creating a short circuit", do not come close to accurately answering signal loss phenomena.
My personal theory on the occurrence of losing service is that most of us on AT&T are in fringe networks. Covering the antenna, which is placed on the exterior of the cell phone, is negatively affecting reception like it always does. The reason why is a little more complex then just "shorting out", but it does occur when held. This has always happened with phones, and happened with my 3G as well. When I would leave it on my desk at home, it could send/receive text messages, hold calls, and transfer data. If I held it in my hand it would go to "Searching..." and to "No Service".
Bottom line, holding antenna with your hand negatively affects signal quality. The question is are you on a fringe network where a little signal loss will result in a full loss of service, or are you in a strong service are where it will drop bars but not calls?
Qualifications: I am an Electrical Engineer who studied at the University of Pittsburgh, however, I do not specialize in Radio Frequency studies.
Do you know that each antenna is specially tuned (size-wise) to their specific frequencies? Doesn't it make sense that, by "bridging" the two antennae together, you're essentially changing the size of the antenna, and therefore negatively affecting its ability to send and receive at specific frequencies? Ever hear of rabbit ears? Ever touch them and see what happens to the picture? Same thing is going on here, in essence. You're adding conductive surface area to the antenna that's not designed for that specific frequency spectrum.
All the people "reproducing" this phenomenon on other phones aren't really reproducing the same thing. You cannot physically touch the antenna on other phones, but you can cover them up, muffling signal strength. The iPhone 4's problem is that you are actually touching the two antennae and creating a bridge between them with your finger or palm, altering the way the antenna works, not simply muffling the signal.
If the people having signal problems with the iPhone 4 were simply muffling the signal, then it wouldn't be isolated to a single seam on the entire phone (i.e., Righties would see the same signal loss as lefties, even moreso, since the UMTS/GPRS antenna is on the right side)
It's like screaming and putting your hand over your mouth versus gluing your vocal cords shut. They both accomplish similar results, but they're completely different situations.