Has anyone else who uses Sort Artist to alphabetize by last name noticed this is no longer working? At least on my devices (iPod Touch & iPad 2) this function seems broken. Maybe it's just a setting I've neglected?
Same problem for me. Hopefully it gets fixed soon.
There is a workaround, but not a very good one. On your iPhone, go Settings>Music. Uncheck "Group by Album artist". Then in iTunes, change the Album Artist to the name you want the song to show up under, and the Artist to what you want to sort by.
EDIT: Change the Sort Album Artist field in iTunes to the desired sort artist, and it should work.