Fortunately, there's a way to avoid this obvious security breach until Apple fixes it.
First, password protect your phone and lock it. Then slide to unlock and do this:
1. Tap emergency call.
2. Double tap the home button.
Done. You are now in your favorites. This seems like a feature, because you may want to have emergency number in your favorites for quick dial. The security problem here is double. The first: anyone picking up your phone can make a call to anyone in your favorites. On top of that, this also opens access to your full Address Book, the dial keypad, and your voice mail.
If that wasn't bad enough, the second one is even worse: if you tap on the blue arrows next to the names, it will give you full access to the private information in a favorite entry. And it goes downhill from there:
• If you click in a mail address, it will give you full access to the Mail application. All your mail will be exposed.
• If there's a URL in your contact (or in a mail message) you can click on it and have full access to Safari.
• If you click on send text message in a contact, it will give you full access to all your SMS.
Hopefully, this major security break that fully exposes your most private information will be solved as soon as possible. Until then, you can avoid any potential breach doing the following:
1. In the iPhone home, go to Settings.
2. Click on General.
3. Click on Home Button.
4. Click on either "Home" or "iPod".
This way, the double-click on the home button will take the user back to the unlock screen (if you use "Home") or the iPod screen. I recommend using Home. You will lose the ability to quickly access your favorites for a quick call—which is one of my favorite features—but that's better than having all your private mails, contacts, and SMS database compromised. UPDATE: Evidently Apple has a fix coming in their next firmware update, but we've got no word on when that release is planned
Source: Major Security Flaw in 2.0.2 - Mac Forums and every other iphone news site and our own member RaMod and One1