This isn’t as much of a concern for people who are buying refurbished Apple iPhones as much as it is a concern for people who sent their iPhones to Cupertino for servicing or repairs. Typically what happens when you send something in for warranty is that they’ll send you another unit while they work on fixing yours. When your iPhone has been fixed, they’ll ship it out to the next customer who sends in a unit for repair.
The assumption with the refurbishing process is that the unit will be brought back to “like new” condition with factory spec. Unfortunately, the Apple refurbishing procedure “doesn’t erase all personal data from the iPhone.” With a little bit of footwork, an Oregon State police detective was able to “retrieve some seriously sensitive personal data from a recently purchased refurbished iPhone.” This includes a restoration of the email inbox, for example.
The unfortunate fact of the matter is that there is no full-format utility available for the iPhone yet. If you go through the iTunes-based “Restore” function, much of your personal data remains on the iPhone. It may not be readily visible, but it’s still there.