According to a recent report from Finland, a 17 year old named Henri Helminen was carrying his iPhone in his back pocket when it began smoking. No, Siri didn't want a Marlboro. The damn thing started billowing smoke like a chimney. A CCTV even managed to catch the whole thing on video, which you can check out below. The shenanigans get started at the 0:12 mark.
The battery for the current iPhone 4S is a lithium-based one, which (like almost any battery) can result in fire or explosion if overheated. These batteries found on mobile devices such like laptops or cell phones can run extremely hot and can burn skin on contact. They're also capable of discharging high currents if short circuited, possibly resulting in a shock as effective as a stun gun.
Apple reccomends keeping your iPhone in a temperature range from -4° to 113° F, or 0° to 35° C and -20° to 45° C for the metrically inclined. The iPhone works best from 32° to 95° F, and should be kept as near room temperature as possible. (72° F or 22° C) is ideal.
Apple also reccomends that you remove your iPhone from certain carrying cases while charging, as they may generate excess heat.
