My HoursTracker apps ran into this with the 2.0 (iOS 4) update. I got probably 500 emails about it from users who were very frustrated, and some 1 star reviews.
Apple rushed a 2.0.1 update that includes setting the timezone (and locale) to the current ones. That works around the problem.
I created a simple sample project that demonstrates the problem and submitted it to Apple as a iOS 4 bug.
Note that this bug only comes up if you use a .xib -- the picker behaves properly if you add it in code.
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