There might be other times this happens, but here's how I've been able to consistently recreate the problem. If you drag the cursor to just before an upper case letter, then start typing, and the last thing you type is a punctuation, and then you drag the cursor out to just after the upper case letter, and then hit the back space button, it will go ahead and start deleting everything you've typed so far. It's good to know hitting the space bar stops it. I might take advantage of the bug for deleting entire words when I wish to. For instance, when you allow autocorrect to do it's thing but it suggests wrong words, it woud be nice to quickly delete a lot of entries.
Holding down delete still deletes word by word on my 2G iPhone with v 2.0.2. My guess is that tech was smoking something. If they don't believe you when you call, just ask if they can grab an iPhone and go through the steps to confirm what they're saying, or to at least help set you straight if you're wrong. (Of course, the goal is for them to see that they're being idiots. 🙂 )