I am having the exact same problems too in that my iphone refuses to use the Wifi connection. I can connect to the wirless router sometimes and get the little wifi symbol (sometimes with only 1-2 bars, which is odd as I always used to get full bars since the wireless router is like 5 feet away from me), but as soon as I try to actually get any data, I either get a "cannot load" in Youtube or the connection switches to 3G/Edge in Safari.
I have the iphone 3G, and had perfect wifi connection with my Netgear DG834G prior to updating the iOS to 4.2. I have not changed any settings on the router, other devices still connect perfectly as normal through wifi, so it must logically be the iphone. Since this only happened after 4.2, it must be a bug in the software (unless 4.2 has somehow physically damaged the wifi receiver).
I have tried soft reset, hard reset, network reset, but nothing solves the problem.
Message was edited by: rofldinho