Here.
It was revealed a few months back that iPhone 4 (and, presumably, iPhone 3 & 5) keeps a running GPS log of your whereabouts 24/7 even when Location Services is disabled and the GPS is "off." I no longer consider such settings to be accidents, they are implanted intentionally at the behest of the Feds and these features are used by the Feds to whatever nefarious purposes they have.
I'm becoming more and more nervous about the multitude of unmuted microphones in all electronic devices and the potential implications to individual liberty, privacy, and security (both from the State and from other criminals). If the iPhone 5 is going to have a voice-recognition app, this raises the ante to a whole new level. Imagine that the iPhone 5 leaves the voice-recognition app running at all times, even when the phone is not in use... oops, sorry! Like the always-running GPS-coordinate log, such a store of machine-searchable voice transcripts could store everything you ever said near the phone since you purchased it. This would be a gold mine to the Feds if they, for some reason or other, took a disliking to you.
Manufacturers of electronic devices with cameras and microphones need to start installing a prominent, electrical disconnect switch, meaning, the device isn't just "not running", it's actually electrically inaccessible. I'm thinking of a recessed, red-colored slider switch on the side of the phone that, when slid into the "off" position actually breaks the circuit from the microphone and camera(s) to the rest of the device. Users need to begin demanding this feature. Of course, it won't be demanded until (inevitably) some prominent cases of abuse come out.
In the meantime, consider using a Faraday cage when you want your phone to be truly off the network. And someone needs to design a sound-proof box that permits a phone's ringer to be heard but which prevents audio from entering the box where it can be picked up by the phone's mic.
Clayton -
Oh, Clayton.
You know the little "PC speaker" that's included on every computer motherboard to make little beeps when there are POST errors or whatnot?
Well, reverse the current that goes through that speaker, and it becomes a microphone.
An intercom system normally uses one speaker/microphone at each end - the current is just reversed to switch the roles.
If your phone has a speaker, a mouthpiece and a computer in it, someone could conceivably be listening. The extra mic on an iPhone is mostly for show.