If I try to activate iCloud, my iPhone tells me: The maximum number of free accounts have been activated on this iPhone.

I have this problem too on two iPhones, neither of which have been jailbroken and both of which have been restored as new via iTunes on a PC and upgraded to iOS 5.1. It's the same whether signing into iCloud or Find My Friends. What is causing this error? If an iPhone is completely wiped and restored as new, it should not retain the previous user's iCloud credentials.

I have the solution to this problem, but you need another Apple device that hasn't hit the maximum yet.

First if you haven't already, create a new iCloud account on the other Apple Device.

Then, once you're done creating the iCloud account on your other Apple Device, go back to the device that has already hit the maximum (for you, your iPhone 4) and login to that account.

It worked flawlessly for me. I hope it does for you too.

Any IOS device (an iPhone eg) is limited to creating 3 new free accounts, if yours has used all 3 up you can not create any more on it. But you can create it on another device and then sign into it.