My primary goal is to protect Activesync-based communication from being copied or stolen from an offline device.
In that context how effective is iPhone 3GS and 4 encryption?
I've been looking at this recently and the answer appears to be that the protection may not be great.
First thing is that iOS 4.x devices may not have Apples "data protection" feature enabled on them by default. Data protection is intended to give extra protection to e-mail data and attachments. if the device has been upgraded from iOS 3.x then data protection is not enabled until the device gets a full restore, the details are in this Apple Tech Doc.
The base apple encryption on iOS 4.x devices can be bypassed relatively easily. Booting the device into DFU mode and loading a custom version of the OS (via the limera1n exploit), you can get an SSH connection over the iDevice cable, then mounting the user data partition, give you access to most information stored there in the clear. At the moment I've not found a doc. explaining exactly how apples hardware encryption works, but I guess in some way the mount command must provide the key.
If you write the application, then you have various options for protecting the files stored on the device. I gave a presentation on this at Voices That Matter this year, but to summarise:
The key is available from the device, so an unlocked device (or guessable/brute-forceable) will elicit the key. The key is also on any synced iTunes apps. By sending remote kill (if possible, which should never be relied upon since RF blocking handkerchiefs/bags are well known tools used by adversaries), this can delete the key, disabling recovery of the key and filesystem, and providing "fast wipe" functionality.
It is otherwise extremely awesome, given these very realistic limitations (i.e. no TPM). BlackBerry can't do this sort of thing without a BES (although BES Express is available for free if you have Exchange or SBS/etc server). Android relies on third-party, which is unreliable and insecure at best.
There are two books that cover this, Enterprise Mac Administrator's Guide and the iPhone Forensics book. The former mentions http://www.cellebrite.com for Security ID recovery.
In consensus with Rory McCune's answer, that you can bypass encryption I want to add what goal the encryption in iOS devices has:
It is mainly for data loss prevention. Everything is stored encrypted. This means, that a remote lock-mechanism can force the device to forget the encryption/decryption key and shutdown. This allows you to make an arbitrary amount of data useless, without having to remove or overwrite every byte on disk.