I've seen similar failures before, but usually on connectors carrying more current. Yuck! My guess is a wire frayed in there and caused a short.

WOW, wonder if this is happening to iPod touch(s) as well? My fiancée just bought the 32GB model. An expensive hazard! :(

Sure this is not isolated, my last I phone would get extremely hot if you left the camera running and put it in your pocket.

I returned the handset and it's been sent off for repairs. No explanation yet. I've written more about the fire here: http://tinyurl.com/b5tdtb

WOW! Did Apple have an explanation?

Have you searched on the Apple support forums? And perhaps it's not the point, but Apple's one-year hardware warranty must cover this.