I was reluctant about going into an Apple store to get my iPhone looked at thinking it was a software issue all along.
Yesterday I popped into the Apple Store in Vancouver (Pacific center) and wanted to get their opinion on the issue. A Genius was available (without an appointment) and he asked me if I tried restoring the phone which I had done, he also tried to replicate it but of course it didn't happen. He suggested replacing my unit. Within a few mins I walked out with a brand new iP4 and the home button is perfect. I have tried to replicate the issue since I got it yesterday and it hasn't happened.
I now think it's definitely a hardware issue. My only regret is not having it replaced sooner.
My advice for anyone having this annoying issue is go into your nearest Apple store and get it replaced.
by brand new you mean refurbished.