iPhone not allowed on airplane!!!

I was returning to the US from Europe recently and watching a movie on my iPhone. A flight attendant asked me if I was watching on an iPhone or an iPod Touch. I thought she was just curious about the technology so I told her it was an iPhone. She then said she was sorry but that I would have to turn off the unit for the rest of the flight!

I showed her the Airplane mode icon and assured her that all of the radios were turned off, but this had no effect. She claimed that Airplane mode had been found to be faulty on many smartphones and that it was 'the law' that such phones had to be switched off. This was not specific to the iPhone. I was unable to convince her that my movie presented no danger to the passengers or crew! She did agree to ask the Captain about this and later reported that he would not permit the iPhone to be operated.

I have never heard of such a thing and I've flown many times with my iPhone. Has anyone else encountered this problem or heard of a German or EU mandate against smartphones on planes? The airline in question was Lufthansa if that makes any difference.