I still believe the algorithm was used to convince the consumer the iPhone has a better reception than other phones.
Apple supposedly fixes this issue with the latest update. I had no time to run the update till yesterday. The first thing I noticed that Apple changed the graphic for the bars.
New:

With the old OS 4 you can see that the first bar is much shorter than in the new OS, the angle is slightly flatter and the bars are wider.
Old:

As result even one bar looks like a better reception than two bars in the old OS.
Now, when you compare the iPhone with an android EVO and both show 3 bars then the iPhone looks better because of the bigger first and second bar. However the EVO is showing up to 6 bars (iPhone only 5) which let the consumer think that with full reception the EVO is better than iPhone.
EVO:

It is really interesting how companies are playing with such small things like reception display and how much impact this could have. At least so much that I took time to compare.
- Posted using My iPad
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