iPhone 3G S Hardware Encryption is where?

According to Apple, the iPhone 3G S has “Hardware Encryption” which is supposed to make the unit “highly secure” and enable “instantaneous remote wipe”.

However I have been unable to find any additional documentation on this subject or details on what exactly is being encrypted. Looking at these 21 words, I can presume that the instant remote wipe just means that the encryption key is dropped. That would make the most sense.

I would like to know what parts of the iPhone are encrypted. I currently use a 4 digit passcode to “unlock” my phone. That fact that my phone will wipe off any data after 10 bad tried is a nice feature, but what if the memory from my phone is physically taken out the unit? (unknown) Is the 4 digit passcode part of this “3G S Hardware Encryption”? (unlikely) Is the data readable from outside the iPhone either via the hardware dock with the passcode? (yes)

My testing would suggest that the passcode feature is not part of the Hardware encryption, sense I am able to do a sync with my desktop without having to put in my 4 digit code.

I am hoping that Apple will document this feature in the coming weeks and that ALL data on the iPhone is encrypted, not just arbitrarily sensitive things like contacts and schedules. In a world where our privacy is threatened on an ever greater level, and with new and broad (or over) reaching policing powers, encrypting our data is becoming more and more of a concern.