After playing with the iphone 4 and numerous bluetooth headsets for about two weeks, I pretty much have solution to the problems but not entirely fixed. What I did was doing a reset of all setting on the iphone (General/Reset/Reset All setting). After reset, turn on the bluetooth (don't connect your headset yet), you may find under Bluetooth Devices some devices with alpha numeric codes(these are the configuration of your bluetooth devices that were paired prior to the reset). Click on each device and delete it with a click of "Forget This device". Once all are cleared, you may pair your bluetooth headset once again now. Once paired, you will notice most of the problems (Muffled voice, lost connection, short bluetooth range)would have disappeared. However, the problems may come back to you after some usage which I suspect is the poor management of memory by some applications. I notice whenever I had used Radio applications, Camera Applications, those problems (muffled voice, lost connection, statics etc) would have surfaced again. Once I powered off the phone and restart new, the problems were gone. I think Apple should really look into the memory management issue.