Reported by TUAW: A number of iPhone users who have updated to iPhone OS 3.1 are finding themselves unable to access their Microsoft Exchange accounts due to device incompatibility with Exchange’s server-side encryption.

While the iPhone 3GS supports this device-level encryption, other iPhone and iPod touch models do not. Non-3GS devices had been able to access Exchange systems utilizing the encryption option on iPhone OS 3.0, but the ability was apparently an oversight on Apple’s part that has been corrected in iPhone OS 3.1.

While many are reacting to this issue as though it’s a bug, and are reporting it as such, the reality is that the Exchange encryption requirement is a feature and the fact that it was not being correctly enforced was actually a security hole.

IT administrators with Exchange 2007 SP1 servers and iPhone clients are probably going to be fielding an above-average level of incoming questions, but at least they can rest easy knowing that Exchange encryption is now working correctly. Cold comfort for their users, though.

Apple today posted a support document addressing the issue, noting that the only recommend solution at this time is for affected users’ system administrators to disable the device encryption option for syncing.